The single-family rental (SFR) space is gaining popularity with both seasoned and new real estate investors, making what used to be considered a niche investment option increasingly mainstream. Whether you’re currently a multifamily property owner looking to diversify your portfolio and increase yield or you’re investing in real estate for the first time, SFR properties are well worth your attention. Learn why.
What makes SFRs a smart investment?
Consider these reasons why single-family rentals are a smart investment strategy.
1. High demand makes SFRs a low-risk investment.
A rental property is only profitable if occupied, and the good news for landlords is that there is no shortage of potential tenants. Rental occupancy rates have been at their highest in more than two decades at 97%.
When it comes to SFRs specifically, high demand is due in part to the rise in remote work, which has more Americans leaving behind apartment life in the city to settle down in a house in the suburbs or the country. Houses tend to provide the extra space individuals want to make working at home more comfortable. They’re also a great option for growing families.
As tenant demand for SFRs continues to climb, investors should feel confident about quickly leasing them up.
2. Increasing rental rates mean high revenue potential.
With tenant demand for rental homes outpacing available housing, landlords have raised rents while remaining competitive in the market. SFR rents, especially, have increased substantially over the past year by nearly 11%.
Of course, higher rental rates mean higher revenue potential for your investment properties.
3. Long-term tenants provide consistent cash flow.
There are plenty of reasons to consider investing in multifamily rentals, but one advantage SFRs offer over multifamily units is that they tend to attract long-term tenants. Tenants might sign a lease for anywhere from 6-24 months but are more likely in most cases to renew their lease compared to an apartment renter.
One study found that, among renters who had remained in the same home for the past year, tenants had been in their rental home for an average of seven years. Less tenant turnover means fewer variables to manage and more reliable cash flow from your investment.
4. Your asset is likely to appreciate, further adding to ROI.
Real estate in general is a smart investment choice because of the strong appreciation it experiences. Though the market experiences ups and downs, the overall trend is toward appreciation. Currently, Zillow predicts home values will increase 14.3% in the next year.
Depreciation can also occur due to wear and tear, but the combination of conscientious tenants and a dedicated property manager can ensure your asset is well maintained.
How can you finance your single family rentals?
SFRs are a low-risk investment option with promising potential for a high ROI, but how do you finance your investment?
Some investors may go to their bank or credit union to obtain a loan, but these are typically recourse loans, which places the borrower’s personal assets at risk. New investors may be able to make bank loans work at first, but as their portfolio expands, they quickly outgrow the financing options from their bank.
A much better solution is to obtain an SFR portfolio loan through a commercial real estate lender. You can greatly benefit from choosing a financial product specifically designed for your investment strategy. SFR investors with a year of experience and multiple properties in their portfolio should consider the SFR Portfolio Loans from Verus Commercial Real Estate Finance.
Want to learn more about the differences between financing your investment through a bank versus a commercial real estate lender? Download our comparison guide.