Why SFR Offers Long-Term Stability
Renters Warehouse Blog
Why SFR Offers Long-Term Stability
No matter what type of investments you have, a healthy level of diversification is always the way to go.
Putting all of your eggs in one basket is always risky –and it’s during times of economic uncertainty that the soundness of a diversified investment portfolio can really be seen.
This is certainly true when you look at the events of today, that are playing havoc on many of our investments. There’s a lot of uncertainty in the markets right now, and everything is in flux. It can be all but impossible to plan for the future, and difficult to know the best approach to take with your investments.
For real estate investors, though, these times of uncertainty don’t cause the same level of upheaval. Sure, housing prices experience fluctuation as well, but over the long term, they tend to appreciate in value. Even following a recession, they generally return to their pre-collapse valuation.
When it comes to rental properties, there’s an added level of financial security in addition to appreciation –rental income. People are always going to need a place to live and call home, and with rental investments, you’ll always have a pool of prospective tenants to rent to. Having a tangible asset that offers real value means that you’ll be able to provide a service to someone who needs it while helping you to ride out the turbulent times until things return to normal.
While stocks and shares have their benefits too, this article will take a look at the benefits of adding rental property to your portfolio. We’ll show you how even one or two rental properties can help to offset a great deal of risk, leaving you less exposed and better able to weather volatility in the market.
What Are SFR Properties?
First up, what does SFR mean? SFR stands for single-family residence, or single-family rental; a one-unit rental property. This is in contrast to multifamily rentals, which refer to apartment buildings, condos, and even duplexes (although for all intents and purposes, duplexes and even triplexes have a lot more in common with their SFR counterparts, than they do apartment buildings).
While multifamily properties were the domain of institutional investors for many years, since the 07/08 recession, investors have been plowing funds into SFR property as well. They realized the tremendous investment potential that these properties had to offer, and advancements in tools, tech, and services arriving on the scene made it easier to manage SFR properties to scale. Today, SFR rentals have officially gone mainstream and are an asset class in their own right.
SFR investment properties tend to offer good profitability. They’re also easier to oversee, and more affordable than their multifamily counterparts. They’re experiencing high demand –many renters love the space, convenience, and privacy that SFR-living offers. They’re a great long-term investment for everyone from first-time investors to seasoned investors alike.
Long-Term Benefits of SFR Investments
Let’s look at some benefits of SFR investing now. Read on to see how they stack up to multifamily –and even the stock market.
- The Chance to Diversify
As we mentioned earlier, rental properties give you a chance to diversify your portfolio. This can be tremendously valuable for many people, whose retirement portfolio or 401(k) is heavily dependent on the stock market. According to data compiled by Roofstock, single-family home prices and stock prices are almost perfectly uncorrelated; meaning that the short-term ups and downs of the stock market have almost no direct impact on home prices, which tend to change in value far more slowly. Home values are especially influenced by localized factors including the local economy and supply.
- They’re Profitable
Making a profit on SFR property is a realistic goal. Compared to multifamily, SFR properties tend to generate more per unit. While this varies considerably depending on the type of property in question, and its location, many people are willing to pay more for the space and privacy that SFR properties have. Plus, SFR rents are on the rise, having increased just under 3% year over year from July 2018 to 2019. Even during the 07/08 recession years, rents didn’t drop; they only flattened for a couple of years. Additionally, in the long run, there’s evidence showing that real estate’s returns surpass that of the stock market, with a lot less volatility!
- They’re More Affordable
While investing in real estate requires a significant amount of capital, it’s far more affordable to get started with SFR property than it is multifamily. Starting out with one SFR property also allows you a chance to start small and learn as you go, rather than diving in headfirst with a multiunit property; where there’s a lot more at stake financially.
- There Are Usually Better Deals to Be Found
For the most part, it’s easier to find great deals with SFR, because there’s a much, much wider inventory available to choose from than there is with multifamily property. Having options means you can be picky, and removes some of the pressure from the equation as well. If you feel that you’ve missed out on a great investment, there’s no need worry –there’s bound to be another opportunity that arises soon.
- Demand for SRF Is Increasing
More and more people are turning to renting instead of buying, which means there is a bigger pool of tenants available and more demand for rental property. There’s no longer a stigma attaches to renting, and many people appreciate the flexibility that renting offers. While apartments tend to be popular with younger people, single-family rentals tend to be preferred by families. The stability and privacy of a SFR home, along with the space that it provides –are things that many people prefer, and most are willing to pay more for it. With SFR, your neighborhood matters. Families are looking for houses that are close to good schools, parks, and playgrounds as well as in safe neighborhoods.
- Real Estate Gives You Options
Rental properties give you have options, something that’s especially valuable especially as you near retirement. You can continue to rent the property you, generating a side income for yourself, or if you choose, you could sell it at any time and cash out your portfolio. Having options means that your investment can offer you a considerable amount of stability and long-term security.
- SFR Is Easier to Sell
Finally, when it comes time to sell, SFR homes tend to be easier to shift, and sell for a better price than multifamily. There’s usually higher demand for these properties, and a larger pool of prospective buyers –you can sell to homebuyers, as well as investors. With multifamily, you can really only sell to other investors.
Of course, investing in single-family rentals isn’t for everyone, and just like any investment, there are pros and cons to owning SFR as well. For most investors, it all comes down to your long-term goals, and knowing exactly what’s required with each type of investment. Making informed decisions is always your best strategy, and taking the time to do your research upfront will pay off tremendously over time.
Tips for Long-Term SFR Investing
Like all investments, your success as an SFR investor will depend on your investment strategy, and how well you’re able to generate a profit. Here are some tips for long-term SFR investing success.
- Adopt a long-term perspective
With SFR, it’s usually best to take a long-term perspective. Even if home values go down temporarily, they always recover. Even during the 07/08 recession, rental properties continued to perform well.
- Find qualified tenants
Be diligent with your screening process. This is something that cannot be stressed enough. The tenants that you allow into your property will largely make or break your success, so make sure you have an airtight screening process in place to weed through applicants. Take time to run a background check, credit report, along with employment information and rental history. You’ll also want to make sure you document your screening process in writing and ensure that you stick to it every time, treating each applicant equally.
- Know the law
It’s vital for landlords to have a good understanding of landlord-tenant law, and to stay informed on any changes that occur. One such law is The Federal Fair Housing Act, which is legislation that protects tenants from discrimination when renting a home. There are also many laws on a state and even local level, on everything from security deposits, to evictions, to notice before entry –so make sure you’re aware of them.
- Consider assigning goals to your properties
One idea that many investors swear by, is tying each property to an important life goal. So one property could be for your boat fund during retirement, and one could be for your child’s college tuition. This approach allows you to ensure that your goals remain crystal clear at all times, giving you something tangible to visualize. It’ll make it easier to plan, and help you stay motivated. Just remember to get specific. Connect it with your retirement date –or the date that you’ll need to start using the money, and your long-term income goals.
- Where you invest matters
So how can you find markets to invest in? Investment opportunities vary considerably from market to market, with some areas experiencing more demand for SFR, while others –particularly urban areas, are more suited to apartment living. Always look for strong demand for the type of property you’re investing in, while at the same time running the numbers to ensure that you’ll be making a profit. While a lot of this is speculative, there are a number of factors that you can look at to assess what type of returns you’re likely to get, and how much your property could appreciate over the years.
- Have an emergency fund
Finally, it’s always important to keep a little extra money reserved for those ‘rainy days’ when something unexpectedly breaks or needs to be replaced. You can budget by planning to spend roughly 1-2% of your property’s value in maintenance and repairs annually.
When it comes to investing, a buy-and-hold strategy offers tremendous security, especially when compared to the ups and downs of the stock market during times of volatility. With many stock options stop paying out dividends during economic downturns, with a rental property, you’ll still be able to generate income, each month. Even during times of economic uncertainty.
If you’re looking for an SFR investment, then consider heading over to the Renters Warehouse Research Center. See data for everything from population trends, to migration patterns, to housing price appreciation –giving you the market data that you need to see the long-term viability of a potential investment.
At Renters Warehouse, we’re passionate about real estate –and committed to giving investors access to information that they need to invest. Tune in to our podcast for real estate investing tips and guidance. Check out THIS exciting episode to see one couple’s journey from zero properties to five.