Suburban migration didn’t end with the pandemic. If anything, we’ve seen a long-term shift in American priorities concerning housing, which has led to an increasing number of households moving out of the city and into the suburbs.
When people head out to the ‘burbs, real estate investors would do well to follow. We have a saying in real estate that we look for the path of progress. Sometimes, this is revitalizing or rezoning areas to include new housing or businesses. Sometimes, it is simply the trend of where people are moving.
8 Reasons Investors Benefit from Suburban Rental Properties
Recent trends and long-term market dynamics demonstrate that this trend is here to stay. Here’s why:
1. Shifting priorities
Since the COVID-19 pandemic, living preferences have shifted noticeably. Many have moved from dense urban areas to the suburbs, seeking more space, larger yards, and a quieter environment. This shift, driven by the desire for square footage and flexibility, has boosted demand for suburban rental properties.
Suburban demand didn’t end with the pandemic, though. There’s always been a flux between urban and suburban appeal, but there’s no doubt where the preference lies today. Because demand lies in single-family suburban homes, investors can expect higher rental rates, less turnover, and increased portfolio stability.
2. Affordability
Houses are more expensive than ever. Naturally, people are on the hunt for a deal! Urban housing markets often have higher living costs, making city apartments unaffordable for many. Suburbs, however, offer a better balance of affordability and quality of life.
At the very least, renter households get more bang for their buck in the suburbs. So do investors!
Suburbs benefit from increased land availability and housing inventory. That naturally helps keep prices in check.
3. Better price-to-rent ratios
Because they’re more affordable, suburban properties often have a better price-to-rent ratio. Make no mistake: A better property price doesn’t mean the home will rent for significantly less. If the property is high quality and in a desirable neighborhood, rates can be competitive. Suburban homes often benefit from increased square footage; that extra room means extra income.
Better price-to-rent ratios mean investors can achieve more substantial revenue. This makes scaling your portfolio and acquiring further properties easier.
4. Potential for long-term appreciation
Suburban areas, especially near growing cities or within desirable school districts, tend to appreciate over time as more families move to these areas. Urban decay isn’t likely to happen, as these properties are usually in up-and-coming or established neighborhoods rather than declining urban centers.
For real estate investors, this potential for long-term property appreciation is just another means of generating wealth. Buy-and-hold investors have a multipronged plan of attack involving more than just cash flow or appreciation.
5. Increased inventory
We all know that tight inventory can be a pain. While balance is always good, housing units have been in short supply for a long time—and we feel it. New inventory is much more likely to crop up in suburban areas with land to build. Urban areas are usually already developed to near what the land reasonably allows. That means land is more expensive, too!
In the suburbs, though, builders have a much easier time acquiring land and increasing housing inventory. That gives investors more options and keeps the balance of supply and demand in check.
6. Lower property taxes and maintenance costs
Suburban areas tend to have lower property taxes and maintenance costs than urban properties, where land value and regulations can inflate costs.
Lower ongoing expenses mean higher net cash flow. Consistently high—or at least steady—cash flow is a significant factor in long-term success. Fewer regulations and lower fees in the suburbs also reduce the complexity of property management.
7. Family-oriented residents
Suburbs primarily target families. These households typically rent for longer and are more likely to take care of the property compared to younger, transient urban renters.
Lease renewals reduce turnover costs, including marketing the property, vacancy periods, and wear and tear from frequent moves. Stable, long-term residents also improve cash flow predictability. Families tend to “put down roots” with stable jobs and consistent housing.
8. Less competition from institutional investors
Urban markets often attract large institutional investors, driving up prices and reducing potential profit margins for smaller, more independent investors. This can make it hard for a solo investor to elbow their way into these primary markets.
Individual investors find better deals in the ‘burbs and can capitalize on opportunities without facing bidding wars or runaway prices.
Final Thoughts
As mentioned, there is no universal U.S. housing market. There are individual markets throughout the country, each with multiple submarkets, and often, suburban areas fall under this category. So, when talking about suburban markets and the opportunities they offer investors, it goes without saying that some will be better than others.
Overall, some suburban rental properties can offer a balanced combination of lower costs, strong rental demand, and long-term growth potential, making them a sound choice for real estate investors looking for steady cash flow and appreciation over time.
This article is presented by REI Nation
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
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