SFR Real Estate
SFR Real Estate is a growing trend among real estate investors. As home prices continue to appreciate and interest rates continue to rise , potential home buyers are being forced to turn to rental homes as their primary residence until they can afford to purchase a home. Because of this, the SFR real estate market is in high demand as inventory is low and demand is historically high.
What is SFR Real Estate?
SFR in real estate is an abbreviation that stands for “Single Family Rentals”. SFRs are often traditional site built homes with one unit. In contrast, MFR, multi-family rentals refers to things such as duplexes, tri-plexes, apartment complexes, etc. SFRs are becoming popular amongst major investment firms, such as Blackrock, who purchase SFRs with all cash with the intention to hold the property for many years.
The SFR Market
The single family rental market can only be described as “white-hot”. As mentioned previously, potential home buyers are being priced out of the buying market and being forced to rent SFRs until they can afford to purchase a home at these unprecedented prices. The SFR market, especially in places like Phoenix, is forcasted to continue on this growth trajectory for the foreseeable future.
As we all learned in high-school, supply and demand drives market prices. In the case of the SFR market, demand is extremely high while supply is extremely low. There are simply not enough SFR real estate properties to meet demand. This is why real estate investors are buying SFR real estate properties in bulk, sometimes even paying above market value, speculating that prices and demand will continue to rise.
Investing in SFR Properties
There are multiple strategies that SFR investors use to purchase SFR real estate properties. One of the most popular methods is what some investors refer to as BRRRR
What is BRRRR Investing?
BRRR Investing is an abbreviation (yea… us real estate investors love our abbreviations) for Buy, Rehab, Rent, Refinance, Repeat. This is a method that real estate investors use to purchase multiple properties with the same “seed” money. What BRRR investors do is purchase a property, normally with all cash, that needs extensive rehab (the first R!) Normally they will purchase this property at a discount knowing that once it is fixed up it will be worth significantly more than the purchase price.
After they rehab the property, BRRRR investors place a tenant in the property and rent it out. (the second R!). Ideally the rent is enough to cover the future mortgage (stay tuned, this is coming!) and leave enough extra cash, over and above the mortgage, for the investor to keep.
Once the property is rented for a set amount of time (normally around 6 months) the investor goes to the bank and takes a mortgage out on the property. Remember, the investor purchased this property at a discount meaning there should be plenty of equity in the property. Because of the existing equity, the investor should quality for a cash out refinance on the property (yes, the third R). In the perfect BRRRR, the cash they take out on the property should equal, or surpass, the original amount of cash they put into the property.
Finally, with all their original cash in hand and a cash-flowing rental property the BRRRR investor searches for another SFR real estate property to purchase. And yes, you got right…. repeat is the 4th R
SFR Real Estate Investment types
BRRRR investing isn’t the only type of SFR real estate investing. There are a few different strategies that SFR real estate investors use:
Buy and Hold SFR Investing. This is the strategy that investors use to purchase a home and hold it for multiple years. Often times these investors are not as concerned with the purchase price as they intend to hold the property for an extended amount of time. Often times these investors are investing for both appreciation and cashflow.
SFR flip investors. Most of us are familiar with real estate flipping. SFR real estate flip investing is the process of buying a property under market value, fixing it up, and then selling it for market value. The difference between the purchase price plus the rehab cost and the sales price represents the investor’s profit
SFR Real Estate Wholesaling. This is a controversial investing technique that can be confusing at first. Real Estate wholesalers use mass marketing to find properties that they can place under contract with the “intent” to purchase the property. Normally these investors offer a cash price and a quick sale. They also write into their contracts a specific “contingency” length where they can back out of the contract for any reason. During this contingency period the SFR Real estate wholesaler markets the property they have under contract to potential investors. The biggest take-away here is that most SFR wholesalers have no intention of buying the property. Instead they “sell” the contract to other investors who want to purchase the property.
SFR Real Estate STR investing. STR investing is a new trend in real estate investing. STR stands for Short Term Rentals and represents properties that are listed on websites such as Airbnb, VRBO, Google Vacation Homes, etc. STR investing is a type of investing strategy that purchase SFR Real estate properties, furnish them with furniture, and convert them into short term rentals. This can be a very profitable method for real estate investing.
Risks and Challenges of Investing in SFR Real Estate
Like any investment, there are risks to investing in SFR real estate. As an investor myself, I am sure to take these risks into consideration when purchasing a new SFR.
Here are a few risks to consider:
Real Estate Market Crash: there is always a potential that the real estate market could crash. If it does, you could be stuck with a property that is worth much less than what you purchased it for. This can be especially risky if you have a mortgage on the property and you owe more on the property than what it is worth
Property Damage: When dealing with tenants or STR guests there is always the potential that your property can be damaged and cost you thousands of dollars in repairs.
Laws and Regulations: There is always the potential that laws and regulations could change in the area that you are investing. This is especially true for STR real estate investors who invest in SFR real estate. STRs have come under increased scrutiny over the past few years and many local municipalities are introducing regulations to restrict STRs.
SFR Real Estate Conclusion
In conclusion, SFR real estate is an exceptional investment for anybody who is interested in investing in real estate and growing their worth. Because of the many different SFR real estate investment strategies, there is a method that nearly any person or personality type can resonate with.
Glendale Real Estate Agent
As a real estate agent in Glendale, I work with a lot of investors in Arizona who are interested in purchasing SFR real estate. As a SFR real estate investor myself, I am passionate about real estate investing and helping other real estate investors in Arizona purchase property to add to their portfolio.
