December 22, 2022

Back to Basics - Understanding the Single Family Rental Industry

December 22, 2022
Back to Basics - Understanding the Single Family Rental Industry

What is Single Family Rental (SFR)?

Single family rental (SFR) refers to a type of real estate investment in which an individual or company owns a single-family dwelling, such as a house or townhouse, and rents it out to tenants. SFR properties can range in size, location, and price, and may be owned and managed by individuals or by professional real estate companies.

Investing in SFR properties can be a lucrative way to generate passive income, as long as the property is well-maintained and in a desirable location. Some investors choose to purchase and manage a single SFR property, while others may own and manage a portfolio of multiple SFR properties.

The demand for SFR properties can vary depending on the local housing market and the specific needs of renters in the area. Some investors may focus on acquiring properties in areas with strong job growth or a high demand for rental housing, while others may target properties in more affordable or up-and-coming neighborhoods.

Overall, SFR investing can be a good option for individuals or companies looking to diversify their investment portfolio and generate passive income through rental property ownership.

Institutional Money Flowing Into SFR

Institutional investment in the single family rental (SFR) industry refers to the involvement of large financial institutions, such as private equity firms, hedge funds, and real estate investment trusts (REITs), in the ownership and management of SFR properties.

Over the past decade, there has been a significant increase in institutional investment in the SFR industry, as investors seek to take advantage of the growing demand for rental housing and the potential for strong returns on investment. Today, institutional investors own on average 35% of all SFR properties in the US, while consumers own the remaining 65%. 

Institutional investors may purchase individual SFR properties or portfolio of properties, and may also partner with local property management companies to oversee the day-to-day management of the properties.

Some of the key factors driving institutional investment in the SFR industry include the increasing trend towards renting, particularly among younger generations, and the relative stability and predictability of rental income compared to other types of real estate investments. Additionally, institutional investors may be attracted to the potential for strong returns on investment through rental income and appreciation of the properties over time.

Overall, institutional investment in the SFR industry can provide a range of benefits, including the potential for strong returns on investment and the ability to tap into the growing demand for rental housing. However, it is important for investors to carefully consider the risks and challenges associated with SFR investing, such as the potential for vacancies, maintenance and repair costs, and changes in local market conditions.

What Is The Size of The Single Family Rental industry?

The single family rental (SFR) industry is a significant sector of the real estate market, with a large number of properties and a significant amount of investment. According to the National Association of REALTORS, there were over 43 million rental units in the United States in 2020, with single family homes accounting for a significant portion of that total.

The SFR industry has grown significantly in recent years, as more people have chosen to rent rather than own homes. This trend has been driven by a variety of factors, including rising home prices, increased economic uncertainty, and changing demographic patterns.

In terms of investment, the SFR industry has also grown significantly in recent years. According to a report by the Urban Institute, institutional investors, including large investment firms and real estate companies, have become major players in the SFR market in recent years, with a significant amount of capital being invested in SFR properties.

Overall, the SFR industry is a significant and growing sector of the real estate market, with a large number of properties and a significant amount of investment.

SFR Trends in Recent Years

Unfortunately, like you, I do not have a crystal ball so it is hard for me or Entera to predict the future trends of the SFR industry. However, it is fair to say that the demand for single family rentals has been increasing in recent years, due in part to the rising cost of homeownership and the flexibility and convenience of renting.

Factors that can affect the single family rental market include economic conditions, population growth, job market conditions, and government policies. In general, a strong economy and job market tend to lead to increased demand for rental properties, while economic downturns or rising interest rates can dampen demand.

It is also worth noting that the COVID-19 pandemic has had a significant impact on the real estate market, including the single family rental market. Many people have been forced to move due to job loss or other financial considerations, and the demand for rental properties has increased as a result. It is possible that these trends may continue into the future, but it is difficult to predict exactly how the market will evolve.

Detailed Market Analysis

If you are an institutional buyer and are you looking for a detailed analysis of a specific market? Reach out to us or request a consultation. 

Since our inception in 2018, we have  transacted on 15,000+ single family homes valued at $4.5B across 29 US markets - we know a thing or two about what’s going on across the SFR industry and we’d love to chat with you.