As the explosion in real estate investment has taken place, a popular means of achieving excellent cash flow has been through single-family rentals, or SFRs. Let’s take a closer look at this growing method of getting involved in real estate investment, so you can decide whether it is for you.
What is SFR investing?
With an SFR investment, you are purchasing a single-family rental unit, rehabilitating it, and then getting tenants into the property to generate recurring rental income. This can take place either within your home real estate market or another, but often it is more profitable to look outside your geographic locale.
Through a turn-key or passive real estate investment partner, you can take a completely hands-off approach to this entire process. The turn-key partner has either already handled the process of acquiring and rehabilitating the property, or they do so after you make your investment. Frequently, these partners will also handle the property management for you, so you get the income of a landlord without the obligations or time requirements.
In the right market, this is a very sound investment strategy. Demand for SFRs is high in certain areas, making it easy to attain a steady rental income that equates to secure passive earnings for you. Of course, there is always a risk of the property needing repairs beyond what are anticipated or the home sitting vacant for longer than hoped, but these challenges are mitigated by the sound advice of your turn-key partner.
One of the key benefits of turn-key SFR investment lies in the ease of diversification of your portfolio. Since your local presence is not required, you are able to spread your investment dollars around to a variety of markets, ensuring that you continue to have some rental income in the unlikely event that one of your properties suffers an extended vacancy.
How does it work?
With turn-key SFR investment, you are putting your dollars into a property that will be put on the market for tenants to move into and rent. The process goes something like this:
- You’re provided with a portfolio of investment properties to select from. Each property is screened to ensure it is in a profitable neighborhood and market, ensuring it offers the best capitalization rates (the ratio between the operating income potential and the capital cost of an asset.)
- The turn-key partner acquires the property, sometimes using your investment dollars after you’ve selected the property you wish to invest in.
- The partner “fixes up,” or rehabilitates, the SFR to make it current and appealing to paying tenants. This often includes bringing the property up-to-date with current codes.
- After the property is ready for move-in, it is rented out to a tenant.
- If your investment dollars have not already been put into the property, you acquire the SFR from the turn-key partner at a markup, so the partner recovers its costs and makes a margin of profit.
- The turn-key partner’s property management service assumes responsibility for the property: collecting rent, making repairs, paying property taxes, etc.
- Rental income, minus a percentage for the property management service, is paid to you on a regular basis.
How can this generate long-term income and security?
If done properly, SFR investment allows for a steady stream of long-term income. Since the properties are preselected to ensure they are in profitable markets and neighborhoods, you can rest assured of the rental checks coming in every month for years to come.
How does a turn-key or passive investing service streamline the process?
If you were to undertake this entire process yourself, you would have to either live in the market in which you are investing or spend a considerable amount of time traveling there. You would be a landlord, not an investor, with all of the burdens and late-night phone calls that being a landlord entails.
On the other hand, a turn-key partner takes on all of the work for you, leaving you with just the role of investor. In some cases, the SFR will even be move-in ready, allowing you to begin reaping your passive income right away. Regardless of whether the property is move-in ready or not, you can have a completely hands-off approach to the process. This means you can continue to spend your precious time doing what matters most to you, rather than dealing with the intricacies of the real estate rental market.
This outline should explain to you what SFR investment is and is not. It should also make it clear that turn-key SFR investment is a very sound strategy for providing you with years of passive income, all with little to no involvement or time requirements on your part. When you are ready to get started, give us a call at 248-820-5060 and we will begin helping you select the perfect SFR for your investment.