If someone asked you what the absolute essentials they need to know are for your industry, what would you say? It’s a question we’ve been thinking about. After all, there’s a lot you could say about investing in single-family rentals. What you need to know often goes together with dispelling some misconceptions about the industry.
If you’ve ever thought about investing in single-family rental properties, here’s what you absolutely must know!
Top 10 Things You Need to Know About Investing in Single-Family Rentals!
#1. SFRs are one of the hottest real estate assets you can buy
This real estate investment strategy has been gaining significant traction over the last several decades. Real estate investors flourished after the Great Recession and largely contributed to the revitalization of a decimated real estate market. When COVID-19 hit, renter households began to trade their cramped apartments for spacious SFR suburbs. And even now, with inflation up and interest rates on the rise, there’s more incentive than ever to rent.
Over the past decade, the number of occupied SFRs has grown by 25%. Rental rates are up by double digits and, thanks to short supply and high demand, the value of the properties themselves is only increasing.
#2. You don’t have to be a real estate expert to invest
You don’t have to know everything about real estate to invest effectively. Sure, knowledge helps. But you aren’t doomed to make mistakes just because you’ve never done this before. So much of the beauty in the SFR investment world is in the turnkey model. This allows investors to leverage the experience of professionals who’ve been in this business for years, even decades. It not only minimizes your workload but room for error as well.
#3. SFRs create a solid foundation for any investment portfolio
Single-family rentals are a comparatively stable, reliable portfolio asset. This is thanks to the natural, basic relationship between supply and demand. Real estate is a physical asset and shelter is a basic human need. Because of this, there will always be demand for real estate – rentals included. You’re not going to see the same volatility in real estate that you’ll find in inessential assets.
#4. The tax breaks are worth your while
The tax advantages in real estate investment are vast – particularly in a buy-and-hold strategy. Not only can you deduct owner and operating expenses, but you can take advantage of depreciation, pass-through deductions, and defer capital gains taxes through strategies like the 1031 Exchange. To get the most out of these tax benefits, you’ll want to work with a tax advisor or CPA with experience in real estate investment.
#5. You maintain full ownership (and equity) of the properties you buy
Though popular means of investing in real estate (largely due to accessibility), REITs and crowdfunding platforms don’t give you the same advantages as property ownership. In both cases, you may enjoy the stability of real estate as an asset, but you won’t reap the full reward. When you own the property yourself, you can grow and access its full equity, appreciation, and cash flow. You also control what happens to the property!
#6. Due diligence prevents horror stories
There is no short supply of landlord horror stories. You’ll hear tales of disaster properties and nightmare tenants without even looking for them. But that’s not a fate you’re resigned to. Sure, missteps can happen, but if you practice due diligence – not just in the initial stages of investing, but throughout the process – you avoid a lot of those headaches.
Due diligence means you work with the right people (people that you’ve investigated!) to handle your properties, which are carefully chosen and in the right markets. It also means that, no matter how experienced or inexperienced you may be, you prioritize continuing your real estate education.
#7. The barrier to entry is low
One of the greatest advantages of SFR investing is that, compared to other forms of real estate investment, it’s quite easy to access. You don’t have to have any licenses or certifications. You’re not trying to buy multi-million-dollar apartment buildings. Instead, you benefit from typical real estate market prices and the ability to leverage bank lending.
No expertise required.
#8. You’ll benefit in more ways than one
There’s an ongoing debate about just how important cash flow is in real estate investment. The problem with this line of thinking is that it assumes cash flow is the only metric of success! Real estate investors have advantages far beyond monthly rental income. We’ve already talked about the tax benefits – but there’s the equity, too. Your wealth grows as the mortgage shrinks. The equity you build in your properties is largely immune to inflation and is excellent for increasing net worth while also generating income. It’s a win-win-win!
#9. If you invest in SFRs, you need to work towards owning multiple properties
As a real estate investor, scaling your portfolio is essential. Real wealth generation won’t happen with one or two properties. You’ve got to acquire multiple properties, preferably across different markets, to both mitigate risk and diversify your streams of income.
#10. In SFR investment, you’re playing the long game
Investing in real estate is not fast. This is true of SFR investing, or any buy-and-hold strategy. It demands patience. Start investing in real estate as soon as possible so that your investments have time to grow and flourish. The longer you hold a property, the greater its potential worth and passive income. Scaling, too, takes time. Be methodical. Be diligent.
Build your best financial future through real estate investment.