Your Guide to Single Family Rental Investing

What is SFR Real Estate?

Before we tell you how to get involved in SFR, we should probably explain what it is. SFRs are essentially freestanding or standalone rental homes. SFRs represent approximately 35% of all rental units in the United States, with this percentage continually growing. While some SFRs are owned by institutional and private equity investors, most are individually owned, according to the National Association of REALTORS. Due to the COVID-19 pandemic, the amount of individual SFR owners increased and will likely continue to do so based on the current market.

The Benefits of Investing in SFRs

Many new real estate investors start with SFR investing because these properties are easy to find and much easier to finance compared to commercial buildings. This type of investment may also generate recurring income and equity appreciation over the long term. Here are some benefits of investing in SFR's:

• Financing Options Available - SFRs are typically easier to finance than large multi-family buildings and commercial properties. Financing options include conventional, FHA, and VA loans. Down payments for an SFR property average around 20%, and interest rates are usually about 1% greater than those for a primary residence.
• Strong demand - There is a very strong demand for SFRs due to the increased home prices and low home inventory. Due to the high demand, those who invest in this type of real estate will not see a slow in profit any time soon.
• Rental Income - SFR properties continue to be very popular, making their rent prices rise significantly in the last few years. As an investor in SFR, you will receive a significant rent income due to the price of these properties.
• Tax Benefits - Investing in this type of real estate can provide certain tax benefits that other assets do not. This includes a wide range of deductions to reduce taxable net income for operating expenses, mortgage interest payments, property taxes, owner expenses, and depreciation. SFR investors can also potentially defer paying capital gains tax when a rental property is sold using a 1031 Exchange and purchasing a replacement rental property within a certain time period.
• Easy to Manage - Compared to other types of real estate, SFRs are easy to manage because maintenance and repairs are normally more straightforward and often can be done by yourself or a local contractor.

Downsides of SFR Investing

Any kind of investing comes with its downfalls and risks. There are many advantages to SFR investing, but there are also some disadvantages.

• Upkeep - SFR homes require constant upkeep and maintenance to ensure that it remains safe for tenants. There may be months when you do not have a tenant, but the upkeep of the home still needs to remain constant and habitable.
• Vacancy - When your property is no longer being leased out, operating expenses and the mortgage still need to be paid despite a lack of rental income.
• Tenant Issues - SFR landlords may end up with a challenging tenant that damages property or fails to pay rent on time (or at all). This can cause stress, frustration, and may end with getting a lawyer involved.
• Neighborhood changes - Any kind of neighborhood decline or negative change can affect the demand for rental property in certain areas. This can result in lower rental income and a decline in property value.

Tips for SFR Investing

Here are some strategies to consider when starting your SFR investment journey:

• To earn rental income and profit from long-term appreciation, make sure you buy and home your rental property to get the most out of your rental.
• Invest in a new SFR every few years by reinvesting your current rental income into a new property.
• Rent out part of your primary residence to generate rental income.
• Buy a fixer-upper, make repairs, rent the home, refinance to get cash, and repeat the process.
• Buy a low selling home, flip the property, then charge a higher rent. The higher the risk involved, the potential for a bigger reward.
• If you are looking for a hands-off way of investing in SFRs, consider getting involved in a real estate limited liability company (LLC), where several investors gather funds to invest in an SFR property.

In Conclusion

To start investing in SFR, you will have to find properties to purchase. Work with a real estate agent in your area who has access to the local multiple listing service to help you find houses that would be great as rental homes.

The next step? Get approved for a rental property loan through a mortgage lender. Single family rental investing can be a great way to earn money and make a splash in the real estate industry.