Beyond Bending Tell You How
Real estate investing has always been a popular choice for investors looking for long-term appreciation and steady income streams. While most investors are familiar with commercial real estate, there is another segment of the market that has been gaining popularity in recent years – single-family rental (SFR) properties.
SFR real estate refers to residential properties that are owned by an investor and rented out to tenants. These properties are typically standalone homes, townhouses, or duplexes, and they offer several advantages over other types of real estate investments, such as lower acquisition costs, higher rental yields, and lower vacancy rates.
The Benefits of Investing in SFR Real Estate
Investing in SFR real estate can provide several benefits to investors, including:
Lower Acquisition Costs
Compared to commercial real estate or multi-family properties, SFR properties are generally more affordable to acquire. This makes them an attractive investment option for investors who are just starting out or who have limited capital to invest.
Higher Rental Yields
Because SFR properties are rented out to individual tenants, they often generate higher rental yields than other types of properties. This is because tenants are willing to pay a premium for the privacy and space that comes with a standalone home or townhouse.
According to a report by Roofstock, the average rental yield for SFR properties in the United States was 8.4% in 2020, compared to 5.8% for multi-family properties and 4.9% for commercial real estate.
Lower Vacancy Rates
Another advantage of investing in SFR properties is that they typically have lower vacancy rates than other types of properties. This is because there is a larger pool of potential tenants for SFR properties, and tenants tend to stay in these properties for longer periods of time.
According to Roofstock, the vacancy rate for SFR properties in the United States was just 5.6% in 2020, compared to 7.5% for multi-family properties and 10.8% for commercial real estate.
Appreciation Potential
While rental income is the primary source of return for SFR investments, these properties also have the potential to appreciate in value over time. This can provide additional returns to investors who hold onto their properties for the long-term.
According to a report by ATTOM Data Solutions, the median home price for SFR properties in the United States increased by 10.8% year-over-year in 2020.
How to Invest in SFR Real Estate
Investing in SFR real estate can be done in several ways, including:
Direct Ownership
The most common way to invest in SFR real estate is through direct ownership. This involves purchasing a property outright or financing the purchase with a mortgage, and then renting it out to tenants.
Direct ownership allows investors to have full control over their properties, but it also requires more effort and expertise to manage the property and deal with tenants.
Real Estate Investment Trusts (REITs)
Another way to invest in SFR real estate is through real estate investment trusts (REITs). These are companies that own and manage a portfolio of real estate properties, including SFR properties.
Investors can buy shares in these companies and earn dividends based on the rental income generated by the properties in the portfolio.
Real Estate Crowdfunding
Real estate crowdfunding platforms allow investors to contribute small amounts of money towards the purchase of SFR properties. These platforms pool together the contributions of multiple investors to purchase a property, and then share the rental income and appreciation with the investors.
Crowdfunding platforms provide a low-cost and accessible way for investors to get started in SFR real estate investing, but they also involve more risk and less control than direct ownership.
Choosing the Right SFR Investment
When investing in SFR real estate, it is important to choose the right property and location to maximize returns and minimize risk. Some factors to consider when choosing an investment include:
Location
Location is one of the most important factors to consider when investing in SFR properties. Properties located in high-growth areas with strong job markets and a high demand for housing are likely to generate higher rental yields and appreciation over time.
Property Condition
The condition of the property is also an important factor to consider. Properties that require significant repairs or renovations may have a lower purchase price, but they also require more investment and time to bring up to rental standards.
Rental Demand
The demand for rental properties in the area is another factor to consider when choosing an SFR investment. Properties located in areas with a high demand for rental housing, such as near universities or in urban areas, are likely to generate higher rental yields and lower vacancy rates.
Conclusion
SFR real estate is a growing segment of the real estate market that offers several advantages to investors, including lower acquisition costs, higher rental yields, and lower vacancy rates. By choosing the right property and location, investors can maximize returns and build a profitable rental portfolio over time.
Whether you choose to invest directly in SFR properties, through REITs, or through crowdfunding platforms, it is important to do your research and understand the risks and potential rewards of each investment option.
