Fix and flip investments often require tying up capital or waiting months to see a return on your investment. For early investors hungry to start turning a profit quickly, the single-family rental market could be the solution.
As home prices continue to outpace the cost of living, and millennials seek to put off home ownership for the portability of a rental, the SFR market continues to grow rapidly. The SFR market grew by 31% between 2007 and 2016 and continues its upward trajectory.
SFRs Deliver the Space Today’s Renters Need
Today’s families want more living space and a private yard offered by an SFR without the costs and constraints of homeownership. In 65% of the country, renting—even a spacious SFR—is still less expensive than owning.
SFRs Attract Stable Tenants
For landlords, SFR tenants tend to be married with children and have higher incomes, making these families better sources of long-term, stable income. Especially for early investors, it’s important to minimize vacancies with reliable renters.
SFRs Provide Consistent Income You Can Reinvest
It seems obvious, but it’s worth noting: SFRs can begin generating profit immediately, since you only have one unit to rent. If you foray into the multi-dwelling unit (MDU) market, you may need to rent a substantial portion of the apartments before showing a profit, as the first several units will cover your mortgage loan on the property and operating expenses.
With an SFR, you’ll begin covering the mortgage and taxes immediately upon finding renters. If you didn’t have to put substantial money into renovations, you could turn a profit immediately.
What’s more, the cost of entry into the SFR market is substantially lower than a high-rise MDU, making it perfect for early investors or those looking to generate stable income without a large upfront investment to make it happen.
Don’t Improve Beyond Neighborhood Values and Average Rents
SFRs represent a relatively safe investment in today’s market, but there are several pitfalls you should avoid in order to begin generating rental revenue quickly.
As you consider renovations to the property, it’s important not to improve beyond the property value or the average rents in the area. As with a fix and flip venture, it’s important to remember a suburban home in a low- to middle-income neighborhood does not need Wolf appliances and granite countertops in the kitchen, high-end porcelain tile, or exotic hardwood floors.
Focus your renovation dollars on necessary repairs to the roof or heating and cooling systems, apply fresh paint throughout, and update kitchens and bathrooms with builder grade appliances, if needed. Then, aim to fill the home quickly with reliable tenants.
Grow Out, Not Up
Once you’ve acquired capital from your first SFR investment, it’s time to begin growing. Reinvest your profits into the next SFR. You can make a difference in revitalizing communities by purchasing homes, fixing them up, and renting to reliable families—which, in turn, raises property values so you can earn even more.
As your stable of homes grows, don’t hesitate to hire help when needed. You may turn to a real estate agent to help you fill a vacancy quickly or a property manager to deal with tenant complaints, home repair issues, or rent collection. Just because you’re not managing a high-rise MDU doesn’t mean you shouldn’t get help. The more of your time you free up for investments, the faster your business will grow.
Providing the perfect balance between consistent revenue and fast profits, SFRs provide great opportunities for those starting out, as well as fix and flip investors looking to diversify and generate recurring revenue.
Expand into the profitable world of SFRs with fast funding from 5arch: Get started today!
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