Are you a novice real estate investor? If you are, you may be looking for investment opportunities that are less complex and easier to manage than commercial properties. If this is the case, you may want to consider investing in single-family rental (SFR) properties.
What are Single Family Properties?
Single-family properties are houses that are sold as standalone units. These properties can be found in a wide range of prices, styles, and locations. When you invest in a single-family property, you will be responsible for the entire property. This includes maintaining and repairing the property, as well as managing any tenants that may live there.
If you’re not interested in being a landlord yourself, you can work with your state’s companies, for example, Colorado Springs rental property management companies to handle those tasks for you. Aside from maintenance and tenant management, they can also take care of collecting rent, paying bills, and marketing your property to potential tenants. This can give you the peace of mind knowing that your investment is in good hands, and frees your time so you can focus on other things.
3 Steps for Investing in Single-Family Properties
Now that you know a little more about single-family properties, let’s take a look at three steps you should follow when investing in them.
1. Gather and Study Real Estate Market Data
Real estate investment is primarily a game of strategy and numbers. Before you start looking for properties to invest in, it’s important that you do your homework and study the market data. This will give you a better idea of where the market is headed, and help you find properties that are undervalued and have good potential for appreciation.
Below are some crucial data points you should look at:
- Sales data – This includes information on median home prices, days on market, and the number of homes sold.
- Listing data – This will give you an idea of the current inventory of properties for sale, as well as how long they’ve been on the market.
- Economic indicators – These include job growth, population growth, and inflation.
Forbes also recommends following the 1% rule when it comes to real estate investing. This rule states that your monthly rental income should be at least 1% of the purchase price of the property. So, if you’re looking at a single-family rental property that costs $100,000, your monthly rental income should be at least $1,000.
Why? The 1% rule is a good way to make sure that your rental property is generating positive cash flow each month. This gives you a good idea of whether or not the property is a wise investment.
Your research should also include in-person visits to the neighborhood, so you can get a feel for the area and meet the people who live there. While optional, you can get a lot of valuable insights from this tactic.
For instance, you may find out that there are plans to build a new highway that will run through the neighborhood, which could decrease the property values. Or, you may discover that the school system in the area is excellent, which could make your property more attractive to families with children.
2. Establish Your SFR Property Investment Strategy
Once you have all the information you need, it’s time to start putting together your investment strategy. When it comes to single-family rentals, you have a few different options:
- Buy and hold – This strategy involves buying a property and holding onto it for the long term. You’ll then collect rental income each month, while also benefiting from any appreciation in the property value over time.
- Fix and flip – With this strategy, you buy a property, make any necessary repairs or renovations, and then sell it for a profit.
- House hack – A house hack is when you live in one unit of a duplex or triplex, and rent out the other units to tenants. This helps offset your living expenses, while also giving you the opportunity to build equity in the property.
These are just a few approaches you can take when investing in single-family rental properties. There’s no right or wrong answer – it all depends on your specific goals, budget, and risk tolerance.
3. Work with a Trusted Real Estate Agent
No matter how well you do your research, there are simply some things that you won’t be able to learn without the help of a professional. That’s why it’s important to work with a real estate agent who knows the ins and outs of the market.
A good agent will be able to help you find properties that fit your investment criteria, and also negotiate the best possible price on your behalf. They can also provide valuable insights throughout the process, and help you avoid any costly mistakes. For instance, an experienced agent will know which neighborhoods to avoid, connect you with their network (e.g., financing companies, contractors, etc.), and more.
If you’re thinking about investing in single-family rental properties, following these three steps will help you get started on the right foot. Just remember to do your research, establish a solid investment strategy, and work with a trusted real estate agent to increase your chances of success.