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How Much Should You Invest in a Single Family Rental?

Determining how much to put into a single family rental is a balancing act between risk and reward.

Safe to say, the single most important reason for investing in a single family rental (SFR) is to turn a profit. One burning question, then, is “What’s the minimum amount of money you need to invest in a single-family rental (SFR) to maximize your ROI?”

The answer to this straightforward question is a bit complex.

The first step in determining your outlay of cash is to tally everything up for a realistic picture of all the expenses. Real estate investment company HomeUnion provides a ballpark down payment figure to investors of between $35,000 and $50,000.singlefamilyrental

What Impacts the Cost of Single-Family Rentals?

Multiple factors impact this out-of-pocket figure, starting with the most obvious… the down payment, which is approximately 20% of the home’s value. This number, however, is just the tip of the iceberg.

The next investment bucket relates to the overall condition of the home. Many rental properties need some serious TLC to get them into rentable condition, which can come with a hefty price tag. A coat of paint to freshen up the interior is one thing. But a new roof, heating system, appliances, or landscaping can add up in a heartbeat.

On top of these expenses, don’t forget to factor in closing and loan fees, as well as Home Owners Association fees, taxes, leasing fees, property management costs, and insurance.

Not accounting for enough of the less obvious costs is a common pitfall SFR investors make. That’s why investors must do the necessary legwork and evaluate all of the costs when finding and purchasing a quality investment property.

Teresa Mears of U.S News cautions investors: “Sellers and real estate agents will often provide figures that show the property is profitable, but it’s up to you to make sure those figures truly reflect all the expenses and take into account maintenance costs, home repairs and vacancies.”

Have You Accounted for the Risk of Owning a Rental?

And the buck doesn’t stop there when it comes to cost. You also need to account for the relative risk of a particular investment property to determine whether the payback rate is high enough.  Aside from all of the number crunching, here are a few more things to consider when deciding how much to invest in a specific SFR:

  • Neighborhood: Where you invest will influence both the types of tenants you attract and how often you face vacancies. Is the property close to good schools? What is the crime rate? Are nearby businesses booming with opportunities… or are long commutes part of the deal?
  • Property Taxes: As these can vary greatly, you need to be aware of how much money you will lose to taxes.
  • Available vacancies and rent trends: What is the competition for rentals like for a certain property? And what is the average rent in the area?

In a nutshell, deciding how much to invest in an SFR means you have a lot of up-front work to be done. The good news is this:  With HomeUnion at your side, this task doesn’t have to be overwhelming. We put a wealth of information, research and tools at your fingertips to help you make smart SFR decisions—including how much to invest.

Steve Hovland, Director of Research at HomeUnion, states, “The goal for our investors is to help them make successful choices when it comes to their real estate investing, so they can achieve positive results, not just high yields.” Our database features hundreds of investment properties broken down by all costs and projected returns. At HomeUnion, our focus is on streamlining the investing process, from start to finish, so that you can spend your time on more important priorities. Sign up to start viewing properties now!

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