Recent Posts
Featured Posts
  • Harold Willig

Why Invest in Single Family Homes?


Why should you invest in single-family homes now? Here are eight reasons to consider investing a portion of your investible dollars in single-family homes:

1. Little Correlation to Stock and Bond Market Returns

Single-family rental returns have traditionally had a low correlation to domestic and international stocks, bonds, and commodities. The idea: subpar performance in one asset class can be offset by above-average performance in another asset class. The chart below, from S&P/Case-Shiller, shows that the price movement of U.S. stocks and residential real estate was 0.04%. (If prices move in lock step, the correlation would be 1.)

Source: Standard and Poor’s. Correlations are based on monthly price behavior between January 1987 and December 2009. Investment-grade bonds by the Barclays Aggregate Bond Index, cash equivalents by the yield on 3-month Treasury bills as reported by the Federal Reserve, equity REITs by the NARIET Equity index, and residential real estate by the S&P/Case-Shiller Home Price Index. Prior to April 2006, the S&P/Case-Shiller Home Price Index was known as the Case-Shiller Home Price Index. Charts and graphs are provided for illustrative purposes only. Indices are unmanaged statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities the index represents. Such costs would lower performance. It is not possible to invest directly in an index. Past performance is not an indication of future results.

2. More Stable Cash Flow Than Stocks and Bonds

A prudent, well-managed long-term investment in single-family homes may provide more consistent monthly cash flow than stocks, bonds, and mutual funds. The amount of dividend a stock pays, or its growth over time, may depend on external factors – the debt crisis in Greece, the stock market decline in China - out of your control.

3. Greater Appreciation Potential Than in a Decade

Home prices have fallen substantially: as of March 31, 2015, home prices were 34% below 2006 peak value nationwide. There’s room to rebound. The chart below shows cumulative price changes on resale homes nationwide and in Chicago since 2000.

4. Higher Rental Demand in the Last 20 Years

Homeownership in the United States has fallen as well – while the demand for renting single-family homes has increased. The homeownership rate declined to 63.9% at the end of 2014, according to the U.S. Department of Commerce. In the next five years, analysts project another five to six million households may lose their homes due to foreclosure… driving demand for more SFH rentals.

Demographics have played a part in increasing SFH rental demand, too. “The key in understanding the growth of the rental market is to look at the fundamental long-term demographic trends,” said Mary Umberger in the Chicago Tribune. “Many younger households have delayed getting married and forming families, which has delayed them from buying homes.”

5. New Construction Levels Have Not Increased

New construction levels in the U.S. are far below historical levels. New housing starts in 2005 surpassed two million; ten years later, while slightly rebounding, new home starts totaled less than one million. Fewer new houses - and a growing population - generally translate into higher potential rents for investors.

6. Low Interest Rate Financing Opportunities

“In today’s market, lower interest rates and higher loan-to-value (LTV) ratios can be obtained easier and faster for single-family homes,” said SpringView business partner B2R Finance, L.P. B2R offers portfolio financing for residential rental real estate investors. “ A lower interest payment for investors generally means higher cash flow opportunities.”

7. Potential Tax Advantages

Mortgage interest is deductible. Rental income is “passive income” not subject to self-employment tax. Depreciation provides you 27.5 years of deductions on your property.

8. An Essential Asset Allocation

According to J.P. Morgan Asset Management, “We believe real estate is increasingly being viewed, not as an alternative, but as an essential portfolio component. The reality is that investment portfolios focused on the ‘Big Two Traditionals,’ bonds and equities, are forcing investors to compromise—either by sacrificing return for lower volatility or enhancing return at the expense of higher risk. Real estate may offer a way out.”

For more information on why you may want to consider investing in a professionally managed portfolio of single-family homes, please contact Harold Willig at 917-209-4452 or harold.willig@springviewinvestments.com

Harold Willig is the Manager of SpringView Investment Management, LLC, which he founded in 2012. Mr. Willig also served as HFZ Capital Group’s Chief Financial Officer, and was responsible for the oversight of HFZ's Finance and Accounting team. He has over 16 years of finance and accounting experience. Mr. Willig also ran a consulting practice and provided valuation, analysis, and transactional support services to multi-billion dollar real estate companies. Previously, Mr. Willig served as the Senior Controller and Vice President of Financial Analysis and then the Chief Financial Officer of the Athena Group, a multifamily development company and fund manager.

This post does not constitute investment, tax, legal, or real estate advice. It is not a recommendation or an offer to buy or sell. No warranties implied. Past performance does not guarantee similar future results.

Follow Us
Search By Tags
Archive
  • Facebook Basic Square
  • Twitter Basic Square
  • LinkedIn Social Icon

@ 2017 SpringView Investments, LLC    All Rights Reserved.    Brooklyn, NY 11210      Legal     Sitemap     Site by Serebrin Partners 

For more information:

917-209-4452