Investing Into Single Family Homes – Single Family Home Investments
The most common type of real estate investment property for beginners is a Single Family Residence or SFR. An SFR is your typical single family house, and can range from sub-$20k starter homes to multi-million dollar mansions.
There are 3 big positives when it comes to investing in SFRs:
- They’re cheap. As typically the smallest property type available, the average investor can acquire a single family home for less than any other type of real estate.
- They’re numerous. There are more single family homes in the US than any other type of property, which makes sense, because they are the most popular type of real estate to own.
- Consumers buy them. The retail market for SFRs is the largest, because it’s not just limited to other investors and businesses. Most individuals and families aspire to owning their own home, meaning demand for single family properties is near universal (especially important for Fix & Flips).
There are also problems with Single Family Residences when it comes to real estate investing.
Of all property types, they are the most vulnerable and responsive to macro-economic trends. This is largely due to their close relationship with the lending industry & interest rates (since the majority of SFRs are mortgaged), and leads to major economic events like the Savings & Loan Crisis (80s – 90s) and Great Recession (2008).
As a result, in many high-demand markets (especially on the coasts), single family homes have significantly more volatile price spikes than other types of investment properties.
Finally, from an income vs. expense perspective, often SFRs can return negative ROIs without the efficiencies brought by economies of scale. Small portfolios of single family rental properties are notoriously difficult to manage profitably without some special skills (like self-managing or handyman / construction capabilities).