What Is SFR Real Estate? A Beginner’s Guide

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 real estate:

1. What are single family rentals?
2. Why should you invest in SFR real estate?
3. How does an SFR property compare to a multi family property?
4. Where can you find the best single family real estate for sale?

Related: Residential Real Estate Investment: The Formula for Success

What Are Single Family Rentals?

What does SFR mean in real estate? A single family residence is a one-unit, detached rental property. 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 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:

• Single Family 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 real estate, a single family 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.

• 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, 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, investing in SFR real estate 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.

Related: Invest in the 5 Cheapest Housing Markets in 2020

• Single Family Homes Are in High Demand

For 2020, SFR real estate is in high demand. A few different trends point to this fact. For starters, single family rentals are experiencing lower vacancy rates. According to CNBC, the SFR vacancy rate was 6.8% in the third quarter of 2019. This is a decrease from 7.1% in the year prior. SFR rents have also increased year over year. In addition, single family rentals are starting to fall in low supply. Currently, SFRs make up more than one-third of all rental properties in the US. The construction of new single family homes, however, is beginning to drop. Finally, with more and more Americans moving to the suburbs, SFRs are growing in popularity. The combination of these factors makes an SFR property very desirable in 2020.

• It’s Easier to Manage Them

For many real estate investors, rental property management can be a burden. Investors tend to either self-manage or use professional property 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 property as a home. In addition, since they are small properties with one unit and one set of tenants, single family 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.

Related: Rental Property Management Tips for Landlords

• 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 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 real estate investors.

What About Multi Family Real Estate?

So, how does SFR real estate 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.

1. Profitability

Both single family and multi family homes are profitable. Overall, multi family homes are more profitable because they have multiple units, each generating rental income. However, as it pertains to profit per unit, SFRs are more profitable.

2. Affordability

While multi family rentals are more profitable, they are also more expensive. Generally, the more units a property has, the pricier it is.

3. Demand

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.

4. Management

While multi family properties typically generate enough income to cover professional management fees, SFRs require less management to begin with.

5. Financing

Single family homes are much easier to finance than multi family homes. They are cheaper and have lower credit standards.

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 Real Estate for Sale?

We’ve left the most important question for last. Where can you find the best SFR real estate for sale? The answer is right here, with Mashvisor! Mashvisor’s investment tools are all you need to learn how to find single family homes. With Mashvisor, you can first find the best single family rental markets using the Heatmap Analysis Tool. You can then analyze the SFRs, compare them with others, and buy them. With Mashvisor, you will find the best single family rentals all over the US housing market!

To start investing in SFR real estate, CLICK HERE to start your FREE trial with Mashvisor!