6 features to look for when buying an SFR
Buying a single-family home for the purpose of using it as a rental investment property is not the same as purchasing a residence to live in yourself. There are things you must consider that you would not normally think about if the home is going to be your personal dwelling.
These same considerations would apply if you are thinking of a build-to-rent (BTR) property. If you can’t find a pre-existing single-family property to buy and rent out, you may be missing an opportunity to increase your passive income. The alternative is to develop a property yourself.
Either way, there are basically six areas to consider when evaluating a single-family rental (SFR) as a potential investment property.
1. How much should I spend on an SFR?
Look for a property with strong appreciation potential and good projected cash flow. Check out properties that are more expensive than you can afford as well as those within your reach since real estate often sells below its listing price.
For appreciation potential, look for a property that—with a few cosmetic changes and minor renovations—would attract tenants who can pay higher rents. This will also raise the value of the property if you choose to sell it after a few years.
Of course, to ensure a profitable venture, it’s important to buy a reasonably priced property. The recommendation for rental property is to pay no more than 12 times the annual rent you expect to get.
2. How do I choose the right neighborhood?
If you are looking for a home for your family to occupy, you might look for one located in a neighborhood with a minimum of renters. But as a landlord, you want to look for a property where there is a high percentage of renter-occupied houses, which indicates that the demand for rental property is strong.
Another indicator of a strong rental area is a steady increase in rent prices as well as high prices on homes for sale. One of the potential advantages of investing in a market where the growth in home prices is strong is tapping into owner’s equity to fund the down payment on a new investment property.
A location within a master planned community is an additional plus when looking for a single-family home to rent out. Amenities often include a swimming pool, club house and even pickleball or tennis courts, which can bring you higher rent.
3. Can tenants move in and move out without doing any damage?
If the home has wider doorways and stairs, it will be easier for people to move furniture in or out of the home. This will help eliminate scuffs on the walls and lessens the need to re-paint for every new tenant.
It seems like most people are hanging their flat screen televisions on a wall these days. The space above a fireplace is a very popular spot for this. Eliminate the need for tenants to patch holes in the wall every time they move out by choosing a home with a well-defined TV wall.
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4. How can I make life easier for me and the tenant?
Look for a home where anything that might need to be serviced is on the ground floor, including appliances, water heaters and laundry. This will allow service people easy access to the problem and will minimize damage to your walls and flooring.
If a home you are considering does not have double paned windows, plan to replace the old ones with new ones in standard sizes, even if it means some small alterations to make them match. This hack will standardize the sizes of window coverings, making them easier and more affordable to replace. The new windows will also reduce outside noise and energy costs.
5. Will the home be easy for the tenant to maintain?
Are the home’s materials and finishes durable so they do not have to be replaced often? (The popular luxury vinyl flooring can last up to 25 years!) Are they easy to clean? According to a recent New Home Trends Institute consumer survey, single-family renters value the ability to easily clean flooring and would prefer not to have carpet.
Renters also want flooring, counters and cabinets that are easy to take care of so that they will get back their security deposit when they move out.
6. Choose a house for the tenant, not for yourself
While shopping for your SFR, remember that you are buying it for unknown renters whose tastes and needs are probably different than yours. Do not look for amenities to suit your own lifestyle, but rather choose a home that has more conventional features to please your potential tenants.
Understanding local demographics and tenant profiles can help investors make better choices when selecting rental property to purchase. You may have grown or no children and would prefer to live in a quiet, adult-friendly area. But if your target neighborhood is a favorite for young families, you will want to look for proximity to schools and parks to attract tenants with kids.
Consider why a tenant is looking for a single-family home to begin with. Most are looking for extra space, privacy and the ability to live without sharing walls with others. They want a garage for parking and storage plus a yard for their pets. A pool and flex space are a bonus. And they want these amenities without the need for a down payment.
How can I select the right tenant for my SFR?
Now that you have chosen the perfect rental property, how do you choose the perfect tenant to live there? You want someone who is honest, responsible, and who is going to treat your investment property with respect while always paying their rent on time.
The importance of comprehensive credit reports and background screenings for your prospective tenants cannot be overstated. With a recent increase in application fraud, it is imperative that you count on a reliable source to tell you whether your applicant is financially responsible, has not been evicted, is not a criminal or sex offender and does not write “rubber checks.”
This is exactly why your membership in the American Apartment Owners Association (AAOA) is so important. With more than 139,500 members nationwide, AAOA offers an innovative approach to managing properties. As the nation’s largest landlord organization, a variety of services to assist with new applicants including a tenant background check or tenant screening and state-specific landlord forms such as a rental application or rental agreement are available.
Contact us today to learn more.