10 Reasons Real Estate Investors Love Single-Family Rentals

Single-family rentals have an attraction that appeals to investors everywhere. But why are single-family rentals so desirable? According to the recent single-family rental market report released by Rentometer, average rents for a single-family home continued to rise within the U.S.—reaching an average of $2,357 during 2024. This rise signifies the strong demand along with profitability that real estate investors are interested in about this lucrative asset class.

The following are the top ten reasons why real estate investors are attracted to single-family rentals:

1. Rising rents typically provide consistent cash flow

2. High potential for appreciation in desirable areas

3. High demand makes SFR easier to refinance or sell

4. They are easier to manage

5. Lower cost of entry compared to multifamily or larger real estate investments

6. Tax advantages that may enhance returns

7. Tenant stability leads to reduced vacancy costs

8. SFRs can be a tangible hedge against inflation

9. Strong tenant demand due to changing homeownership trends

10. Multiple exit strategies for flexibility

1. Rising rents typically provide consistent cash flow

Increased rents can offer a consistent and predictable income stream, one of the primary reasons real estate investors are choosing single-family rentals. The stability of this source of income makes it particularly appealing during times of economic uncertainty, as housing will always be a basic need. 

With the median rent for a US single-family home being $2,174 per month, an increase of 4.4% from the comparable month last year, the potential for consistent yields is evident. This cash flow can be maximized through strategic rent optimization and diligent expense control. 

2. High potential for appreciation in desirable areas

One vital attraction of single-family rental homes is that they are likely to appreciate. The choice of the home within expanding neighborhoods will ensure maximum long-term return. Appreciation in property value lies within the neighborhood being of highest standard, and the presence of surrounding amenities like shopping complexes, parks, and infrastructural developments. Such factors create higher housing demand, which makes property appreciate over time.

Some examples are the suburbs surrounding Nashville, Austin, Texas, and Raleigh, North Carolina, which saw unprecedented appreciation based on growing employment markets and population. Such places are best discovered through extensive market research and careful due diligence.

3. High demand makes SFR easier to refinance or sell

The high demand for single-family rentals enhances liquidity significantly, making it easier to sell or refinance the property. High demand makes the market competitive. If the property has a strong demand, it will be a liquid asset that investors can easily sell to cash if the situation arises. Also, lenders are willing to provide more favorable finance offers to highly marketable property that has documented rental income.

The appreciation of the value of the SFRs in the best locations also provides the possibility to refinance at lower interest rates. When housing values rise, investors can utilize their equity to raise new capital under better terms. The refinancing option provides the means to allow investors to optimize their cash flows and optimize their yields.

4. They are easier to manage

Another one of the significant advantages of single-family rentals is that they are simpler to manage than multi-family housing. With one occupant per property, the maintenance will be considerably lower. There are also  fewer common systems and common areas to be maintained.

The advances that have been made to property management software have further transformed rental units as more passive investments. With current technology, investors can automate the collection of rent payments, manage maintenance issues, and effectively communicate with the tenants remotely.

5. Lower cost of entry compared to multifamily or larger real estate investments

Single-family rentals are a simpler entry vehicle for new investors because they are less costly to purchase upfront than multifamily or larger real property investments. This is great for investors with limited capital. The reduced cost further reduces the capital risk per investment. There are also various types of finance to use to purchase rental properties, such as conventional home mortgages and FHA loans, making them flexible and within the means of more investors.

On top of this, the option to "house hack" makes SFRs much more affordable. House hacking involves living within a part of the single-family home and renting the remaining part. 

6. Tax advantages that may enhance returns

Single-family rentals offer several tax advantages that can significantly enhance investment returns. The main deductions such as depreciation, property taxation, and maintenance expenses allow the taxable income to be reduced significantly. Depreciation particularly gives investors the benefit to deduct some of the property's value during its life cycle. 

Investors can also employ strategies like 1031 exchanges to defer capital gains taxation when selling one investment property to purchase another. More strategies like cost segregation enable investors to accelerate depreciation write-offs. It should be noted that the laws are complex and subject to revision. Therefore, investors are highly recommended to consult an expert.

7. Tenant stability leads to reduced vacancy costs

Single-family rentals will be appealing to long-term renters, particularly family groups who desire the privacy and permanence of an independent residence. SFR families with children are likely to settle down and stay there for the long term. This minimizes the frequency of having to replace tenants, thus reducing the marketing, cleaning, and fix-up expenses that are incurred to replace the property. 

The use of longer tenancies also provides lower vacancy costs and more stable returns through the assurance of an ongoing source of income. With every property vacancy, investors incur losses from the rentals and the cost of readjusting the property to accommodate a new occupant.

8. SFRs can be a tangible hedge against inflation

Single-family rentals can be a tangible inflation hedge because both property appreciation and rent rise along with indexes of rising cost-of-living. As inflation erodes the purchasing power of money, housing demand remains unchanged. Meanwhile, the underlying asset value of the real property will appreciate, keeping the investor's capital preserved and sometimes growing. 

In addition to that, the addition of single-family rentals to an investment portfolio diversified holdings, lowering the overall risk. Real estate, unlike stock or bonds, is a tangible asset that has underlying value that is less prone to the whimsy of the capital markets.

9. Strong tenant demand due to changing homeownership trends

Single-family rentals remain in strong demand due to shifting homeownership trends, particularly among millennials and Gen Z. With home prices skyrocketing along with the rise in mortgage rates, these generations are opting to rent rather than buy. This means that there is a growing desire for flexibility and affordability, making SFR a desirable housing option.

In addition to this, urban migration and remote work trends are also fueling the demand for single-family rentals. As individuals and families want more space and privacy, they are moving away from highly populated urban regions to the suburbs and rural areas.

10. Multiple exit strategies for flexibility

One of the advantages that stands out about single-family rentals is the flexibility gained through various exit strategies. There are no limits to one option; investors are free to sell the property, refinance, or convert the rental property to a short-term rental to generate additional income. 

Besides this, single-family properties are also more liquid than multifamily. As they are appealing to various types of buyers, including potential homeowners, the SFRs are likely to sell quickly, which makes investors more nimble during uncertain market conditions. The liquidity gives investors the ability to trade portfolios easily, capitalize on new deals, or cover potential losses.

Potential Challenges and Risk Mitigation

While there are a number of benefits to the single-family rental sector, there are risks and challenges to be weighed. Tenant turnover is one issue that can lead to periods of vacancy along with the associated costs. Another issue is unexpected maintenance expenses. Creating a reserve account to pay for maintenance and unexpected issues can help investors avoid these types of costs. 

Market volatility and recessions are another risk. Diversifying investment locations and focusing on geographies that are economically strong will help to counter this risk. Staying current on the newest market trends and making the appropriate adjustments to the rental rate will also be helpful. Staying current about the newest housing policy initiatives within the region and consulting legal professionals are also essential. 

FAQs

What are single-family rentals?

Single-family rentals are residential housing meant to be rented to one family or individual. Standalone houses are typically located within residential or suburban areas and consist of private backyards, garages, and separate entryways. Single-family rentals are different from the multifamily units such as apartment units or duplexes because they provide a more independent and private lifestyle. As an investment vehicle, SFRs are an actual asset that can generate income through rentals and appreciate in the future.

Are single-family rentals a good investment?

Indeed, SFR investing can be perfect for individual investors seeking steady cash flow, long-term appreciation, and tax advantages. Their comparative ease to manage, compared to multi-family complexes, and the flexibility that comes along with having a range of exit strategies makes them appealing. But careful analysis of the marketplace, diligent property management, and a thorough understanding of the legal and finance aspects of real estate investment is required.

Related article: Investing in single-family rentals vs. REIT

The Bottom Line

Single-family rentals can be a desirable investment. With the potential  to generate consistent cash flow, appreciate in value, and serve as an inflation hedge, they are an asset that every investor will want to add to their investment portfolio. While there are some issues to be taken into account, such as the potential for tenant turnover and maintenance issues, these can be effectively managed through careful planning and ongoing management. As homeownership trends evolve and the demand for rentals continues to expand, single-family rentals will likely be a strong and consistent investment option for the foreseeable future.