“Real estate investment” is an all-encompassing term for several different property types. Today, we’re turning our attention to investing in single-family homes. In 2024, single-family rentals (SFR) were the second-largest rental housing type in the U.S., accounting for about 14 million households.
Why Single-Family Homes Are Smart Investments
Single-family homes are a real estate investment staple. This property type offers stability, demand, and income possibilities for new and seasoned investors diversifying their portfolios.
Part of what makes these properties so appealing is their versatility—they can be long-term rentals, holiday homes, or fix-and-flips.
Regardless of what an investor plans to do with the property, a thorough understanding of the complexities of investing in single-family homes is a non-negotiable first step.
The Real Estate Market for Single-Family Homes
A single-family home is a standalone residential property. Unlike multifamily homes or apartment complexes, which may share these spaces, single-family homes have private yards and garages.
These homes were once the American dream, but their investment function has changed over time.
SFR growth tends to mirror economic and social trends. For example, rising housing costs, a penchant for suburban living, and a growing number of renters have driven demand for these properties up.
All of this potential and possibility has led investors to prioritize single-family homes in their real estate strategies.
Unique Benefits of Single-Family Homes
Single-family homes provide new and experienced investors with many benefits that draw them to this asset class:
- Consistent Demand: 35% of American households rent, and single-family homes appeal to suburban families seeking room, privacy, and a suburban lifestyle. They attract long-term, stable tenants, while apartments often struggle with this.
- Lower Acquisition Costs: Single-family homes require less initial investment than multifamily or commercial properties. First-time investors tend to find it easier to start here.
- Financing Accessibility: Lenders often consider single-family homes to be less risky, making mortgages easier to get with smaller down payments and interest rates.
- Appreciation Potential: Home appreciation in attractive neighborhoods is steady, providing equity and financial gains. This can significantly increase an investor’s ROI.
- Tax Benefits: Mortgage interest, property taxes, and depreciation deductions cut taxable income for homeowners.
- Tenant Stability: Renting single-family homes reduces tenant turnover and costs because families tend to stay in these properties longer.
- Hedge Against Inflation: Single-family home investments protect long-term value during inflationary periods. Property values and rental income rise in inflationary settings, safeguarding purchasing power.
- Short-Term Rentals: Single-family vacation rentals in popular tourist areas are highly coveted. Dynamic pricing allows you to take advantage of demand during busy seasons.
Addressing Single-Family Home Investment Challenges
The benefits are compelling, but like any REIT, investing in single-family homes is not without challenges.
Here are some of those challenges, along with strategies to lessen their impact:
- Maintenance: Maintaining single-family homes can be costly for investors. Unlike multifamily properties, expenditures are not shared. Solution: Set aside money for repairs and choose dependable professionals.
- Risks: An empty property generates no income, but you’ll still have bills to pay. Extended vacancies might hurt cash flow. Solution: Invest in high-demand areas and screen tenants to reduce turnover.
- Geographic Dependency: Local factors like job prospects and neighborhood popularity can make or break an investment. Solution: Diversify your assets across several classes to reduce risk.
- HOA Fees and Restrictions: Some properties include homeowners’ association fees, which can limit revenues, and HOAs may have rental property laws. Solution: Before buying, review HOA agreements and consider expenses to determine how they might impact your ROI.
- Time Management: Managing a single-family rental property can be time-consuming, especially for investors with multiple properties in various locations. Solution: Hire experienced property managers for daily operations, tenant relations, and maintenance.
How Single-Family Homes Compare to Other Investments
Single-family homes offer certain advantages to the people who live in them as well as to those who invest in these properties.
Take a look at the chart below to see how single-family homes compare to multifamily units and commercial properties in terms of acquisition costs, rental income, maintenance costs, and vacancy risks.
| Investment Type | Acquisition Costs | Rental Income | Maintenance Costs | Vacancy Risks |
| Single-Family Homes | Lower | Moderate | Moderate | Higher |
| Multifamily Units | Higher | Higher | Shared | Lower |
| Commercial Properties | Highest | Highest | High | Moderate |
Considering the information in the chart, single-family homes tend to be ideal for investors looking for a relatively low-risk entry point that can deliver steady long-term gains.
Conversely, multifamily and commercial properties may offer higher incomes but often involve increased complexity, costs, and risk.
Single-Family Home Investment: Step-By-Step
Although single-family tends to be a relatively low-risk investment, these risks aren’t non-existent. Fortunately, most of these risks can be mitigated with careful planning and following a strategic process.
Here is a step-by-step guide to investing in single-family real estate.
1. Investigate the Market
Get a good understanding of the local real estate market. Find areas with high rental demand, increasing employment markets, and good schools. Zillow, Realtor.com, and local government data can provide significant insights.
Take into account things like:
- Average rentals vs. median home prices.
- Whether parks, shopping, and transit are nearby.
- School evaluations and safety data (particularly important to families).
2. Get Financing
Securing funding is crucial for realizing investment potential. Try traditional loans, private funding, or real estate investment partnerships.
Some of the steps you’ll need to take to secure financing include:
- Monitoring your credit score and taking steps to improve it.
- Comparing lender interest rates for the best deals.
- If you qualify, consider FHA or VA loans for reduced down payments.
- Proactively gathering documents, such as income and tax records, to streamline the application process.
3. Build a Budget
Financial surprises can pop up during the real estate investment journey, but there are ways to avoid many of them or at least mitigate their impact. The first and most important way to do this is with the help of a budget.
When you set out to create your investment, make sure to include these:
- Real estate agent commissions, closing costs, and purchase price.
- Renovation and repair costs should cover quick fixes and long-term upgrades like roof replacement or landscaping.
- Annual property taxes, insurance, and utilities.
- A 5-10% purchase price contingency fund for unanticipated complications.
4. Evaluate Properties
Without due diligence, you risk investing in a property that does not meet your goals or expectations or poses other challenges.
Evaluate several properties so you can compare and contrast and learn more about the market in general as you do so.
To choose a property that is more likely to fulfill your goals, you’ll want to do several things for prospective properties:
- Schedule professional inspections to evaluate the roof, foundation, HVAC system, plumbing, and electrical wiring.
- Calculate potential rental revenue using data from the local market.
- Examine the property’s history, including previous maintenance and any liens or legal difficulties.
- Consider the layout and amenities: properties with modern kitchens, baths, and outside spaces are more appealing to tenants.
5. Find Good Tenants
Tenant selection can determine whether or not your investment is profitable. It can also make a big difference in how much administrative work and other challenges you might come up against.
A thorough screening procedure should include the following:
- Checking credit ratings and rental history to determine dependability.
- Verifying income to guarantee that tenants can afford the rent.
- Requiring references from past landlords to assess tenant behavior.
Creating a lease agreement clearly defines tenant responsibilities and standards, such as pet policies and maintenance requirements. Make sure tenants are fully aware of what these agreements include so there is no room for misunderstanding about each party’s responsibilities.
6. Consider Professional Management
Property management organizations can manage day-to-day operations. Their services can be invaluable when it comes to saving you time and stress.
Some of the tasks your property management team can handle include:
- Market the property to prospective tenants.
- Processing maintenance requests and emergency repairs.
- Rent collection and financial record management.
- Legal assistance with lease agreements and evictions, where needed.
7. Track Your Investment
Keep a close eye on your property’s performance to be sure you’re maximizing returns.
Some of the metrics and other factors to monitor are:
- Monthly income and expense tracking helps to find areas for improvement.
- Rental rates are adjusted annually to reflect market conditions and inflation.
- Closely watch local real estate trends and rules.
Investing in Single-Family Properties: Case Studies in Lessons Learned
Below, we’ll look at two case studies to see how investing in single-family real estate can pay off.
Case Study 1: Suburban Rents
A high-demand single-family home in an Atlanta suburb sold for $200,000 to an investor. After $20,000 in improvements, the property was rented for $1,800 per month.
The property appreciated $350,000 over five years, while rental revenue covered bills and provided cash flow.
This property yielded a profit of $194,800 over five years through rental income and substantial appreciation.
Case Study 2: Vacation Rental Transformation
A Florida beachfront property bought for $300,000 was transformed into a short-term rental. During peak seasons, the property earned $9,000 monthly on Airbnb and $5,000 during slower seasons, for an average annual earnings of $84,000.
The property owner recouped their investment and began profiting off of this property in just over three and a half years.
Is SFR Investment Right for You?
Expanding your portfolio with single-family houses allows you to generate consistent income and long-term appreciation in an often tumultuous real estate market.
Single-family homes offer affordability, stability, and development potential, which is why many novice and experienced investors are interested in this asset class.
