Buying investment properties as a beginner can be challenging. For starters, what type of real estate should you invest in? Even after settling on a type, such as residential real estate, you’ll still have to decide on the specific type of property to buy. To make things a little easier for beginners, we’ll focus on the quintessential residential property: single family rentals (SFR). In this guide, we’ll answer four burning questions about SFR investment real estate properties:
- What Are SFR Investment Properties?
- Why Should You Invest in SFR Real Estate?
- How Does an SFR Investment Compare to a Multi Family Property?
- Where Can You Find the Best SFR Investment Properties for Sale?
- Getting Started with Single Family Rentals Investing
What Are SFR Investment Properties?
What does SFR mean in real estate? Single family rental properties are one-unit, detached rental properties. An SFR detached home often comes with a yard and garage. The SFR property type has dominated residential investing for many years. These investment properties are known for their profitability, affordability, and demand. As a result, single family homes are a reliable go-to investment for beginner real estate investors.
Why Should You Invest in SFR Real Estate?
SFR investment real estate is in no shortage across the US housing market. But availability is not the only reason why you should be investing in single family homes. There are five main reasons why:
1. SFR Investment Homes Are Profitable
The goal of investing in real estate is to make a profit. With single family homes, this goal is easily achievable. Compared to other types of structures, a SFR investment residential property tends to generate more in rental income per unit. As a result, single family homes for rent can easily generate positive cash flow. One of the reasons why is that SFR tenants usually pay for their utility bills. For many other property types, such as apartments, landlords pay some of the utility bills.
2. They Are Affordable
There’s no way around it, investing in real estate is expensive. By investing in single family rentals, however, this issue is reduced. SFR investment properties are cheaper than other types of real estate investments, such as multi family properties. The reason is, quite simply, that SFRs are smaller. Even when other variables, such as location and age, are held constant, single family homes are considered cheaper.
Thanks to the lower prices, buying an SFR investment is very accessible. Financing a single family home also becomes easier, especially when securing a loan. As a result, beginner investors, such as millennials, are attracted to SFR properties.
3. Single Family Homes Are in High Demand
For 2023-2024, SFR real estate is in high demand. A few different trends point to this fact. For starters, SFR investment houses are experiencing lower vacancy rates. According to PWSC Home Experts, the SFR vacancy rate is around 5-6% at the moment. Meanwhile, SFR rents have increased year over year. USA Today reports the median rent for SFR investment properties to be $2,395 in 2023, a 20% increase from 2021 and a 6% rise from 2022.
In addition, single family rentals are starting to fall in low supply. Traditional, SFRs have made up more than one-third of all rental properties in the US, according to MarketWatch. However, CNN reports a housing crisis with a deficit of 3.8 million rental units, including SFRs.
Finally, with more and more Americans moving to the suburbs in the new remote working environment, SFRs are growing in popularity. The combination of these factors makes an SFR investment very desirable in 2023 and 2024.
4. SFR Investment Property Is Easier to Manage
For many investors, rental property management can be a burden. Investors tend to either self-manage or use professional management when dealing with properties. If you are investing in an SFR, however, property management is not much of an issue. Tenants are unlikely to damage SFRs in any major way since they see the house as a home.
In addition, since they are small properties with one unit and one set of tenants, SFR investment homes tend to require less management. Ultimately, any management strategy works with SFRs. With a lower management load, investors should focus on efficiency when choosing a method.
5. It’s Easier to Finance Them
The fifth reason why SFR real estate is worth the investment is due to its simple financing. This all stems from their low property prices. As mentioned earlier, buying a single family home is relatively affordable. You can secure a mortgage for an SFR investment even if you don’t have hundreds of thousands of dollars saved up. This is because SFR down payments are usually lower than those of other residential properties. The smooth financing of SFRs makes them even more accessible to beginner investors.
How Does an SFR Investment Compare to a Multi Family Property?
So, how does SFR investment compare to multi family real estate? Should you invest in single family homes vs multi family homes? We’ll briefly compare the two based on the five factors listed in the previous section.
Both SFR investments and multi family rentals are profitable. Overall, multi family homes are more profitable because they have multiple units, each generating its own rental income. However, as it pertains to profit per unit, SFRs are more profitable as the rental rate per housing unit is significantly higher.
While multi family rentals are more profitable, they are also more expensive. Generally, the more units a property has, the pricier it is. So, while multi family homes are cheaper per rental unit, the overall price is much higher than with a SFR investment home.
Whether single family or multi family rentals are in higher demand depends on the location. However, there are plenty of locations where tenants desire single family rentals and others where they desire multi family rentals. So, you need to conduct diligent research and analysis before choosing the best rental markets in the US for either type of property.
While multi family properties typically generate enough income to cover professional management fees, SFR investments require less management to begin with. If you live in state and have some free time, you can easily be a landlord with the latter.
SFR investment homes are much easier to finance than multi family homes. They are cheaper and have lower credit score standards because of the lower amount of the mortgage loan.
There’s no doubt that both residential rental types are considered a good rental property investment. Ultimately, the choice depends on an investor’s goals. However, due to their accessibility, SFR real estate is better suited for first-time property buyers.
Where Can You Find the Best SFR Investment Properties for Sale?
We’ve left the most important question for last. Where can you find the best SFR investment real estate for sale?
The answer is right here, at Mashvisor! Mashvisor’s investment tools are all you need to learn how to find SFR investment homes and analyze their investment potential.
With the Mashvisor Market Finder and Heatmap Analysis Tool, you can first find the best single family rental markets. You can enter your exact requirements and expectations to find the top cities for this type of rental properties, whether you plan to rent out on a short term or long term basis.
Next, you can use the Mashvisor Property Finder to search for the most profitable SFR investment properties for sale in your selected market. This tool allows you to set up your budget and your preferred rental strategy in order to provide you with the top-performing properties currently available for sale.
Finally, the Mashvisor Investment Property Calculator will provide you with readily available analysis of the expected performance of your chosen single family properties as traditional, long term rentals as well as vacation rentals. You can compare different SFR properties and both strategies to guarantee profitable real estate investments.
All you need to do to get started is to sign up for a 7-day free trial of Mashvisor.
Getting Started with Single Family Rentals Investing
As you have just seen, buying SFR investment properties offer multiple important advantages over their most popular competitor – multi family homes. Single family homes are generally affordable, easy to rent out and manage, not hard to finance, and – most importantly – highly profitable.
Nevertheless, not every rental of this type promises to bring high return on investment. The profitability that you will be able to drive depends on the market, the property itself, and the way you manage it. As always, making a profitable real estate investment decision depends on using the right tools. The Mashvisor platform hosts all the tools that savvy investors need to find the best SFR investments in 2024 and beyond.
Click here to start your 7-day free trial of Mashvisor.