There are terms thrown about all the time when it comes to real estate investing. And oftentimes they are just letters, i.e. acronyms. ABR… CRE… FHA. One such acronym is SFR. What is SFR in real estate? It stands for single-family rentals. But what does that mean, and why do real estate professionals use it? It certainly wouldn’t hurt to know before you go further in your investment journey.
As one of the premier property management companies in Philadelphia, we understand how the terminology can sometimes be confusing. We often find ourselves throwing acronyms around like crazy. It can certainly help to slow things down every so often and make sure we are clear on what the terms mean. So let’s jump into this particular one and go over some of the basics of what is meant by SFR in real estate. In this article we will go over the following:
- What is an SFR in Real Estate? – Let’s go a little deeper into what an actual SFR is.
- Basics of SFR Investing – We will explore some of the basics of what it means to get into this particular investment type.
- How a Property Manager Could Help – Finally, we will touch on how having a property manager could help in making this investment a winning one for the long term.
What is an SFR in Real Estate?
When we say SFR in real estate situations we mean single-family rentals. They are a class of investment property that consists of standalone residential housing that is designed to accommodate one household. SFR properties include detached houses, townhouses, duplexes, and multi-unit buildings.
Tenants that rent single-family homes typically get access to amenities that come with other types of housing such as yards and garages. For real estate investors, SFRs represent a unique value. Long-term tenants are often attracted to these types of homes because they are seeking the privacy and autonomy of a home environment. This benefits investors since it translates to a low turnover of renters and more stable rental income streams.
Basics of SFR Investing
Generally speaking an SFR in real estate is more likely to generate investment returns for real estate investors if it generates rental income. Investors are used to being able to set relatively high rents for SFRs. Why? Because people like them and so high demand generally equates to higher rents.
This means more cash flow for investors.
SFR properties are appealing investments for a number of reasons. Here we will go over a few of the main benefits that bring investors into the SFR game.
Good ROI
One of the most significant benefits of single-family rentals is that they are often considered both affordable and have a high return on investment (ROI). They are typically less expensive than larger properties, and so there is less cash poured into the purchase from the beginning.
Aside from their affordability, single-family homes are also known for their profitability, and that means a good, solid ROI. As soon as SFRs are rented out, investors begin seeing a good income stream come in from rental payments that they find goes a long way towards making the investment profitable.
Good for Investors of All Levels
Investors of all kinds can take advantage of the opportunities available when investing through an SFR in real estate markets. You don’t have to be an expert or have a huge portfolio of experience.
There are two main ways that SFRs generate returns for their investors:
- Monthly cash flow
- Long-term appreciation of their value
Often owners use the property’s cash flow (those monthly payments) to cover the mortgage and additional expenses like repair costs and general upkeep. Hoping to make some additional money from that cash flow is a bonus, but investors typically look to the appreciation of that property over time in order to see the long-term value of the home.
Tax Benefits
SFR properties also have numerous tax benefits. Real estate doesn’t often include the same types of volatility as stocks and other forms of investment and often come with better tax incentives. That long-term appreciation of housing that we just went over can be a better alternative for many.
Owners can deduct a lot of the expenses. That includes things like property management fees, maintenance and repairs, mortgage interest, insurance, and property taxes from this rental income. In addition, if the property is sold, owners may see the benefit of a capital gains tax rate, which are typically lower than ordinary income tax rates.
How a Property Manager Could Help
There are all kinds of low-risk (or low-ish risk) real estate options out there. SFR investing is considered one of those for a number of reasons. Whether you’re just starting or want to expand your real estate portfolio, finding those low-risk ways to invest can help you earn passive income without breaking the bank.
If you don’t have the time or don’t want to be a full-time landlord, Bay Property Management Group can help. Our team of property management professionals can help ensure your rental property is well-maintained and taken care of 24/7. Contact us today to learn more about our services throughout Baltimore, Philadelphia, Northern Virginia, and Washington, DC.
