What is SFR Real Estate?

Breaking into the real estate market can be challenging for an investor. You have to go into the purchasing process knowing what kind of real estate you’re interested in, and what specific type of rental property will give you the biggest returns. On top of that, there’s the property management and tenant relationships to consider. 

One type of residential property that should be on your radar, if it isn’t already, is single family rentals, or SFRs.

SFR real estate is a booming market that has stood the test of time, making it a great entry-level business decision for property investors. As a property management company that handles Raleigh property management to Austin property management for single family rentals, we know all the benefits of this type of real estate. Keep reading to learn more about the SFR real estate meaning for investors—what it is, why it’s profitable, and how to get involved.

SFR Real Estate Questions, Answered

First, let’s break down all the moving parts, so you’ll have a clear answer to the overarching question: What is SFR real estate?

What is a SFR Property?

Single family rentals are a one-unit, detached residence, as in a standalone property on its own lot. SFR properties can be houses, condos, or townhomes, and oftentimes come with a yard, patio, and garage.

The SFR property type has no units, meaning it isn’t zoned as a duplex, triplex, or other multi-family setups. It’s meant to be a living space for one family or group of people—it isn’t meant for, and typically isn’t allowed to be a space to house multiple families or commercial business ventures.

What Does the SFR Market Typically Look Like?

SFR real estate took over as the fastest-growing segment of the housing market in 2010, surpassing single family homeownership for the first time, according to data analysis site Urban Institute. They also noted that due to the investment potential, the SFR market players are also different in the following ways:

  • The majority of SFR units are owned by sole investors rather than giant institutional investors
  • Institutional investors only make up 2% of the market
  • Roughly half of today’s market is made up of investors who own only one unit

In comparison to all other commercial and residential real estate segments, SFR investments are typically the most affordable, stable, and profitable. SFR real estate is a strong market due to its necessity, and that demand has only increased in recent months—both in terms of property investors and renters. 

How is the SFR Market Doing Right Now?

SFR real estate is expected to be one of the few asset classes to experience a growth in demand following the coronavirus pandemic. Investment advisor Jeff Cline divulged that in April alone, he saw a number of stunning trends in the SFR market. Here are some of the most notable figures for April 2020, as reported by the real estate news site Globe St:

  • Buyer and seller activity increased by a whopping 650%
  • SFR homes outperformed multi-family rental homes (MFR) on early rent collections
  • SFR rent collections totaled at about 5% uncollected, while MFR rent was an estimated 24% uncollected
  • Record high credit card debt, student loans, and unemployment rates, alongside the job market and stock market hitting record lows, means more people will be renting

Beyond the scope of April, these upward projections of the SFR real estate market ring true for the entire year—and there are specific trends to be looking out for.

What are the SFR Trends for 2020?

Staying on top of trends as a real estate investor is important, but analyzing them before entering today’s market is critical. Knowing where to look for opportunities is a huge part of figuring out where to get started. Here are some elements to look for when choosing a city for a SFR property:

  • Employment opportunities
  • Good quality of life
  • Surrounding activities
  • Population growth rates
  • Rapid development of city infrastructure
  • Expansion of airports
  • Colleges and universities nearby
  • Technology industry growth
  • Suburbs with easy access to city life
  • Revamping of downtown area
  • Access to nature and outdoor sports
  • Bustling nightlife and regular events
  • Travel destinations

Not all of these boxes must be checked to be considered a good real estate investment. For example, a city with increasing employment opportunities and a revamping downtown area doesn’t have to be a travel destination to be a quality investment. To predict the profitability of a SFR investment, be sure to measure single family rental cap rates. 

Trending Cities for SFR

Here are some examples of cities that fall in line with this list, as reported by PricewaterhouseCooper’s Emergency Trends in Real Estate research:

  1. Austin, Texas – Austin is number one in terms of SFR investment and overall real estate, proving itself a highly desirable place to live. With colleges and universities, suburbs not far outside of downtown, access to nature, artistic style, and thriving business and tech scene, its unique mix of features amounts to a high quality of life for many different people.
  1. Raleigh-Durham, North Carolina – With colleges, universities, and some 90,000 tech jobs, there’s a constant stream of renters in this city. In terms of current properties, suburban office spaces and multi-family homes are seeing the largest investment right now. But as an up-and-coming city, Raleigh-Durham topped the charts for homebuilding prospects, which is a huge element of the SFR market (more on this below).
  1. Nashville, Tennessee – This city slipped from first to fourth place in terms of homebuilding, but continues to climb in terms of real estate prospects due to its continued investment and development. Known for its music scene and local culture, Nashville’s high population growth and low cost of living make it a leading 18-hour city.
  1. Charlotte, North Carolina – Moving up in the charts in every sense, including homebuilding prospects, where it now places second, this city has proven to be a massive attraction for technology, manufacturing, and start-up companies, diversifying beyond its banking reputation. Plus, with a leading research university just a 20-minute drive from a developing downtown scene, more students are looking for off-campus housing.
  1. Boston, Massachusetts – Boston seems like a comparatively small metro market due to its population size, but its top-tier economic performance has resulted in a flouring real estate market. While downtown is more business and multi-family oriented, the city’s successful job market, family-friendly suburbs, and proximity to some of the country’s top universities make Boston a growing SFR hotspot.

Trending State: Florida

If the cost of investment is your priority, you should consider one state in particular: Florida. 

With average home prices below the national average, low cost of property tax and insurance, and no state income tax, Florida homes are an easier real estate investment. Plus, with amusement parks, beaches, and universities, there will never be a shortage of tenants—the Sunshine State is the known retirement capital of America, after all. 

If you invest in Florida real estate, here are the three best cities for SFRs, according to the Real Wealth Network:

  1. Orlando, Florida
  2. Tampa, Florida
  3. Jacksonville, Florida

Build-to-Rent Market

The build-to-rent market, also called build-for-rent, is a huge player in the SFR real estate market today. According to Cline, build-to-rent properties can have even higher margins than other SFR properties, and subdivision sell-out is 75% faster.

Building a home with the sole purpose of renting it out is a relatively new idea. What was once a niche market is now seen by investors as an additional long-term revenue stream that appeals to renters.

What Are the Benefits of SFR Real Estate?

From an investing point of view, there are several reasons why SFR real estate has become the fast-growing sector and primary strategy within the housing market. Here are some of the major benefits:

  • Appreciation potential – Traditional homes have some of the strongest appreciation, so you can expect the value of your purchase to increase over time.
  • Positive cash flow – Tenants’ rental payments typically exceed your usual rental expenses, so you can put the remaining money toward mortgages, property management, or in the bank.
  • Higher rent than MFR units – When comparing SFR property to apartments and smaller multi-unit property, SFR rent is usually higher—people pay to have more space, a garage, yard, and to not worry about the behavior of the tenants next door, below, or above.
  • Lower entry price – Not having to spend as much money upfront is a less stressful decision, and it makes bills easier to pay off sooner.
  • Easy ways to boost returns – Being able to customize each investment property is a huge advantage of SFR properties, and without tons of small apartments, your property manager will easily be able to handle the job. From the exterior paint, to appliances, to interior decor, you can keep your rental property up-to-date at a lower cost.
  • Tenant consistency – Long-term SFR homes are known not to have the quick turnover rates that multi-units have. SFR tenants that stay for longer periods of time means less incurred costs and guaranteed rental payments.

Getting Started with a SFR Property

If you’re looking to invest in an existing property, you’ll be surprised by how easy it is—you can quickly find SFR properties for sale online. The hard part is what comes next: setting your rental rates, finding tenants to rent, and learning all the skills of managing a new investment property for the first time. 

Thankfully, Great Jones can take care of all that.

The property management experts at Great Jones offer a number of services that make the SFR renting process simpler, including the following:

  • Taking professional photos of your property
  • Listing your property across multiple sites
  • Finding and screening all applicants
  • Handling upkeep and repairs
  • Providing 24/7 support for SFR tenants
  • Collecting and delivering rent with no hidden fees
  • Helping you find new ways to increase revenue

Located in many of the best cities for SFR real estate, Great Jones will ensure you have reliable, long-term occupancy—and they have a 0% eviction rate to prove it. Whether you need property management in Fort Myers or property management in St. Louis, contact Great Jones today to learn more about how they can help kickstart your residential real estate goals.

Sources: 

Urban Institute. Five things that might surprise you about the fastest-growing segment of the housing market. https://www.urban.org/urban-wire/five-things-might-surprise-you-about-fastest-growing-segment-housing-market

Globe St. Demand Jumps in Single-Family Rental Market. https://www.globest.com/2020/04/29/demand-jumps-in-single-family-rental-market/?slreturn=20200517130918

PricewaterhouseCooper. Top Five markets to watch in 2020. https://www.pwc.com/us/en/industries/asset-wealth-management/real-estate/emerging-trends-in-real-estate.html

Real Wealth Network. Best Places to Buy Rental Property in 2020. https://www.realwealthnetwork.com/learn/best-places-to-buy-rental-property/

Laura Fayer

Laura works on the Finance & Analytics Team at Great Jones. She's eager to help Great Jones scale as a business and make our services readily available to more investment property owners across the country.

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