In This Article

  1. What is SFR Real Estate?
  2. 9 Reasons to Invest in SFR Real Estate
  3. Advantages of SFR Real Estate
  4. Disadvantages of SFR Real Estate
  5. SFR Investment Strategies
  6. The Bottom Line: SFR Real Estate

If you are a beginner real estate investor, you may be examining real estate niches and trying to decide which one is right for you.

One of those options to be considered is Single Family SFR Real Estate (SFR). 

In this article, we’ll explore SFR real estate to help you decide if its the right real estate investing niche for you.

What is SFR Real Estate?

With SFR real estate, a real estate investor rents out a single-family residence as opposed to a unit in a multi-family building like a duplex or an apartment building. 

A single-family residence is a one-unit detached property that usually includes a garage and a yard. 

9 Reasons to Invest in SFR Real Estate

#1: Suitable for Beginners

Because SFR is a relatively simple investment — after securing a loan or paying for the property in cash, the only thing standing in between earning monthly cash flow is finding the right tenants — making it a good option for beginner real estate investors to dip their toes in the real estate investing pool.

Once you rent your property you will enjoy a steady cash flow from rental payments in addition to the potential for building equity with rising prices.

#2: Low Barrier For Entry

Because you can finance a single-family residence without a large capital investment — you can use traditional mortgages, private money loans or by leveraging your existing home equity — SFR real estate has a low barrier for entry compared to other forms of real estate investing. 

#3: Appreciation

When your single-family home appreciates in value — it can appreciate much faster than other forms of real estate investing — you can build equity in addition to a steady rental income flow.

The longer you own the home, the more it will grow in value, and when you decide to sell it, you’ll be able to reap the benefits of that appreciation. 

#4: Tax Benefits 

Since SFR real estate is held for longer than 12 months, investors can receive more tax breaks than other fast-moving investment types, such as house flipping.

These tax benefits include depreciation, where you can take an annual tax deduction based on the average depreciation of the building. 

You can learn how rental income is taxed — and how to pay less taxes legally — in this guide

#5: Cash Flow

Once a property is rented to the right tenants, SFR property investments can provide rental payments that can cover your mortgage payment, general maintenance. 

While other real estate investments have fees that can eat away at this cash flow, like ground maintenance, SFR real estate does not.

#6: Diversification 

If you have your hard earned money invested in bonds, mutual funds, savings accounts, or other investment accounts, SFR real estate is another way that you can diversify your investment portfolio.

#7: High Market Demand 

The demand for single-family rentals remains high today. Construction of single-family homes does not keep up with demand in some areas, so you can expect low vacancy rates and high rent potential. 

#8: Easy Management

As long as a well-built and well maintained property is purchased, SFR properties are easy to manage compared to multi-family properties. You can typically manage the property and avoid the fees associated with hiring a property manager.

#9: Safe Principal

Real estate is considered a safe investment because of supply and demand. After all, people will always need a roof over their head regardless of what the economy is like or how the stock market is doing.

Keep in mind that it’s critical to research the market trends of the area you’re considered in buying a SFR real estate property.

Advantages of SFR Real Estate

The main reason to invest in SFR properties is that they are profitable. Compared to other forms of real estate investing, SFR investing generally yields more monthly rental income per unit. 

Tenants generally view the residence as a home and take good care of it, eliminating the need for time-consuming property management or hiring an outside company to do the job. 

Disadvantages of SFR Real Estate

While SFR investments have many advantages for real estate investing, there are some disadvantages. 

Keep in mind that when you buy SFR’s you buy them one at a time, so it can take you longer to scale your portfolio. 

Also, if your SFR’s are in different locations, for example in a state on the other side of the country, managing tenants as well as any necessary repairs can become an issue. 

Plus, prolonged vacancies can have a far greater impact since there are no other units, for example compared to commercial real estate investing, to compensate for the loss. 

SFR Investment Strategies

SFR real estate investment strategies can range from buying and holding a single unit to BRRRR, where you buy a property, renovate it, rent it, refinance, and repeat the process. 

The Bottom Line: SFR Real Estate

If you are a new real estate investor looking for a profitable, yet affordable real estate niche, take SFR real estate into consideration. 

With SFR real estate, you can expect to keep your principal safe and reap the rewards of a steady income stream in addition to building equity with higher prices in the future if you buy in a good area.

Since SFR properties are valued by comparable residences in the neighborhood, make sure you know about local market trends before you invest. 

Once you buy an SFR, attract a high-quality tenant who will take care of your property and you’ll be on your way to experiencing the benefits of this form of real estate investing.