The SFR investment space is more attractive than ever, and the barriers to entry are becoming ever-lower as technology begins to expand into real estate.
Single-family residential (SFRs) are an attractive investment class, but many investors have struggled to get traction in this space — or have found the barriers to entry too prohibitive to even try.
Before you can purchase your first SFR property, you have to lay the groundwork for success, and that has traditionally meant that investors need to do two things before they can start really generating a profit: first, establish a local brokerage network to assist you with finding and buying homes for sale; and second, hire teams of analysts who can process the data you’re generating internally and give you insights into which investments and markets are worth iterating on and which you should probably sell off or exit entirely.
To buy and begin making money on an SFR investment property, next you have to understand where you are going to invest (in which markets) as well as which types of properties best fit your business model — your buy box. Then, you have to find the homes that align with that property type in the markets where you are active. You’ll need to underwrite the home to determine your expenses and revenue and then decide whether (and at what price) every potential investment, or home, is worth it. And you’ll have to make a fair offer, follow the deal through closing, get the home resident-ready, find people to live there, and manage the property, from collecting rent to making repairs.
That’s just the groundwork you’ll have to lay before you start collecting any rental income at all. The most successful SFR investors also use data analysis to iterate on the markets and types of homes that are generating the best returns for them, and considering alternative options when certain markets or types of homes are proving less lucrative.
But new shifts in technology and operating platforms are changing how SFR investors launch and grow their strategies. Similar to how algorithmic trading has revolutionized other asset classes, real estate investors can now use data to test their ideas about which homes will provide the best returns in different markets — without hiring an analyst, and before purchasing a single home. The same data can also flag markets and opportunities that investors aren’t currently considering but that could be a lucrative next move, another analyst activity that doesn’t require hiring a human.
Software solutions can layer your buy box over the available homes for sale and show potential yield for every listing across multiple markets, surfacing the best opportunities for you much more efficiently than an individual broker or even a team of brokers could. Technology can also instantly underwrite any property you’re considering purchasing, allowing you to make an offer with a click of a button, and gives you the ability to track multiple transactions through closing, monitoring appraisals and inspections, title searches, and more.
You can also use these tools to experiment with theoretical builds and expansions — where upgrades and renovations will offer the most benefits, whether there are new types of homes or new markets where you could expand, and where the best opportunities lie based on your current budget and buy box. And technology is also helping to support the ongoing management of SFR properties, from rent collection to repair requests to finding and vetting residents to creating a resource network of providers — plumbers, electricians, contractors, property managers, and more.
The SFR investment space is more attractive than ever, and the barriers to entry are becoming ever-lower as technology begins to expand into real estate. Even if this is a new space and experience for you, the available tools — especially when used as part of a larger workflow — can make building your empire easier than you imagined.
