SFR stands for Single-family Residential/Rental home, a label assigned to standalone homes
SFR market overview
Single-Family Rentals (SFRs) are considered one of the most profitable investments in the real estate industry in the last decade. SFRs are resilient even in the most uncertain economic times like what we’ve been going through in the previous two years. The COVID-19 pandemic has destabilized almost every industry, including real estate.
However, the SFR market has remained pretty stable compared to other real estate markets. In this article, We will highlight some of the most crucial insights about SFRs that We believe everyone in real estate needs to know about. Let’s dive in!
What are SFRs?
Before getting into the deeper insights, let’s first discuss what SFRs are. SFR stands for Single-family Residential/Rental home, a label assigned to standalone homes occupied by a single-family. Studies show that every 1 in 5 Americans lives in a Single-family Rental, which clearly shows how popular these rentals are in the US.
Growth of single-family rentals in recent years
Single-family rentals are now considered one of the fastest-growing segments in the real estate industry. This rise was highly geared by the financial crisis in 2008 that forced many families to get into much smaller SFRs. A report from the Terner Center at the University of California at Berkeley shows that over 3.8 million additional households became renters of single-family homes between 2006 to 2016.
The COVID-19 pandemic has further increased the demand for SFRs as more people are leaving urban centers to rent SFRs in the suburbs. Another reason for this trend could be that more people are now starting to work from home, making it more logical to leave the expensive apartments in urban centers in favor of SFRs in the suburbs.
There have also been several reports indicating institution investors are starting to invest in SFRs, which further increases their demand and price. About 3% of the SFRs in the USA are now owned by institutional investors. This is good news for anyone who intends to invest in SFRs because their demand is increasing at a much higher rate than any other housing segment in the real estate industry.
So, how have the prices of SFRs risen in recent years? In 2016, the average cost of SFRs was around $241,000. By the end of Q4, this price had shot up to over $360,000 and above 400,000 in Q3 of 2021. The occupancy rates also reached 97% in 2021, which is the all-time highest in recent history.
Changes in SFRs that you should expect in 2022 and beyond
The Real estate industry, including SFRs, is very dynamic, so expect a couple of things to change in the next couple of months. If you intend to invest in SFRs, here are some of the changes you need to ready for;
· Occupancy rates will continue
The occupancy rate of SFRs rose from 94.5% in Q1 of 2021 to 97% by the end of the year. These rates at times change due to the season of the year, but on average, the occupancy rate has been growing year over year since 2011. In 2022, we expect this rate to increase or remain the same at worst.
· SFRs rent is continuing to grow
The rental prices for SFRs were affected in the early days of the pandemic due to the uncertainty in the industry. However, as most states started opening up towards the end of 2020, rental prices went out of the roof. According to a report by Arbor, Single-Family Rental Investment Trends, the annual rent growth had reached 6.2% by June 2020, which is the highest since May 2016.
The prices continued to go up till the end of 2020 and throughout 2021. As we start 2022, we expect this trend to continue moving in the same direction.
· More construction
As demand for SFRs goes up, it is more logical for investors to construct more SFRs to meet this demand. According to research by Trepp, over 50,000 single-family rental homes were added in 2021, representing a 66% growth in the number of new SFRs added in a single year. The decline in homeowner rates and rise in demand for SFRs have been the major catalysts for this growth.
Overall, the SFR market looks very promising for any investor that intends to get into this real estate segment. The continued growth in occupancy and demand makes today one of the best times to invest SFRs. Of course, an increase in demand and occupancy automatically leads to higher rental prices, which is good news for investors.
At Triple Alpha, we are glad to be contributing to the growth of this segment to real estate. In 2021 alone, we constructed and sold over 100 homes, which were all SFRs. If you are an individual or hedge fund considering buying a flipped or newly constructed SFR, you can always reach out to us for assistance.