Growing Your SFR Portfolio
Renters Warehouse Blog
As an investor, you want to grow your portfolio as quickly as possible. But while many investors feel that investing in multifamily rentals is the best way to achieve growth quickly, this isn’t the right move for everyone.
True, multifamily property has its benefits. After all, you can start right away and you’ll already have occupants so you’ll be profitable from day one. But it’s also important to note that multifamily can be a tricky investment to get started with, and almost always requires an extensive initial outlay of capital. It also tends to carry more risk as well. Consider that all of your investments are in one location and tied to the whims of the local housing market. If something were to go wrong, you’d be stuck.
SFR on the other hand, is something that’s easier to get started with, and offers some unique advantages over multifamily.
Let’s take a look at some of the benefits:
- The Chance for Diversification: First up, owning a number of properties spread out across different markets can help to protect you from any temporary downturns in the local markets.
- A Lower Point of Entry: Single family rentals are easier to purchase than a multifamily unit, they’re much more affordable too.
- Less Maintenance and Lower Running Costs: SFR properties don’t have common areas like pools or gyms that landlords are required to maintain. Likewise, tenants in SFR properties usually pay for their own utilities as well.
- Growing Demand: Many renters prefer a home of their own over apartment living.
See also: Improving Your SFR Portfolio’s Performance.
These benefits make SFR an ideal investment for many investors. The great thing about SFR investing is that it allows you to grow your portfolio as quickly as you’d like: you decide how many properties you invest in, and where you invest.
With this in mind let’s take a few ways that you can start the process of growing your SFR portfolio now.
Expand Your Search Perimeters
If you are looking to grow your portfolio, then you’ll want to consider expanding your search perimeters and looking beyond your home town for an investment. While there are difficulties that come with investing out of town or out of state, by expanding your search, you are able to find better deals that can come with better returns.
Out-of-state property allows you to diversify your SFR portfolio as well. Unlike a multifamily property, potential for better deals is higher since you are expanding your search perimeters and have more potential houses to choose from. You also are able to choose locations that are in high demand for rental units.
To help you get started, you may want to consider talking with locals from or in the area you are looking to invest, hiring a property manager, or talking with a real estate agent for advice. Don’t close the door on potentially good deals because they are just outside your reach.
But remember the following tips when investing out of state:
- Research the Local Area - Investing out of state comes with a sense of unfamiliarity. You can address this by ensuring that you do your research on the local market, and finding a property that’s priced right and expected to generate the returns that you’re looking for. Once you have a property in mind, head over to our Market Research Center to find housing data and market information on the local area.
- Factor in Additional Insurance Costs - Insurance coverage varies from state to state. Different geographical areas are prone to different natural disasters, and frustratingly, you’ll need to take out an additional policy to cover against some specific natural disasters. One common example is flood insurance being excluded from hurricane-prone areas in Texas. Be sure you talk with a local agent to ensure you get adequate coverage for the area.
- Research Local Landlord-Tenant Laws - Legislation in regards to rentals varies considerably from state to state. It is important that you familiarize yourself with these laws.
- Be Aware of Differing Property Taxes - Property taxes also vary from state to state. It is important to know just how much you will be paying in property taxes so you can determine if the investment makes sense financially.
Curious about investing in a different state? Read: Investing Outside Your Home City, for some practical tips to get started.
Be Ready to Close a Deal
Good deals are often hard to find because they are picked up by someone who acted quicker. If you are ready to grow and expand, then you should be ready to close a deal soon after you’ve found one. This means understanding what you are looking for, knowing the numbers you are working with, and having finances ready to roll.
Being ready to close on a good deal doesn’t mean foregoing important research or failing to run the numbers, it just means that you have all of your ducks in a row, including a plan for financing, so that you can move quickly. When a deal crosses your path that lines up with your requirements, you don’t have to stop long to decide when to jump.
While you may want to be a one-man-show in your investment venture, when it comes to growing and expanding your portfolio, you will find your time being stretched thinner and thinner.
By outsourcing, you can add to your portfolio without having to stop and handle the day-to-day issues that will arise. Having a solid team or those you can outsource to will enable you to continue your research of finding new investments without having to worry about your current rentals.
Here are three main areas you might consider outsourcing:
- Property Management
If you struggle to keep your rentals occupied you’ll be losing out on income. But finding, screening, and managing tenants is not always an easy process. In fact, it can be time-consuming. From advertising and finding potential tenants, screening and placing them, to collecting rent, and managing their requests and concerns, taking care of your tenants can be a very time-consuming process. It helps to find a property or tenant manager to handle these tasks for you.
- Maintenance and Repairs
Maintenance and repairs are two other major aspects of owning real estate. Managing the maintenance and arranging repairs is essential for the success of your investment. Maintenance issues, such as lawn mowing and snow shoveling, leaky roofs or plumbing, are all very real issues that arise in rentals. Having someone call when things go wrong is tremendously helpful; especially as your portfolio expands. If you decide to invest in another city or state, outsourcing is essential, as you simply cannot be there when every issue arises. Hiring out these tasks allows you to grow.
Finally, the financial aspect of your rentals is another important area you will want to consider. This includes rent management, mortgage payments, insurance, and taxes. When you start multiplying your units, you will be multiplying your work as well. This can be a very time-consuming process and something is bound to get forgotten or dropped when you are trying to manage multiple properties. Consider finding someone to help you with the financials, especially during tax season, to help keep you moving forward.
If you are considering expanding you’ll also want to consider enlisting the help of a property management company. From advertising and tenant screening, to rent collection and maintenance scheduling, a property manager will be able to take on all of those time-consuming tasks. Hiring a local property manager will also alleviate the stress of having to know the specific laws in that area. If you are considering buying a property out of state, consider talking with a local property manager to get an inside perspective about what you can expect.
Choose a Strategy to Grow Your Portfolio
When it comes to improving your portfolio, you will need to find a strategy that works for you and your goals to help boost your growth. While there are many different strategies and methods available, there are a few that are more popular than others. Here are some of the more common ways to grow and improve your portfolio.
Looking to get started with investing, but don’t know where to start? Consider reading: First-Time Income Property Investors, How to Begin.
- The Snowball Method
Anyone who has experienced making a snowman will understand this method. You start by rolling a small snowball and as it gains momentum, it grows. In real estate, the snowball method involves starting small and growing from where you are. Or, in investing terms, save all the cash flow from your current investment and roll it into more properties. The more cash flow you acquire, the faster your portfolio will grow.
This is a great way to get the ball rolling, so to speak, in growing your portfolio and boosting its performance.
- Fix and Flip
The fix and flip method is perhaps one of the most well-known methods for expansion. It’s all about finding a property that needs some help, purchasing it at a discounted price, performing the repairs, and boosting the home value. Then your focus is on selling and making a profit that can be used to put towards another investment.
You can also get involved in a live-in fix and flip, which essentially means you live in the house while performing the needed upgrades and repairs. While certainly not for everyone, it is a great method that reduces your need for multiple mortgages, allows you to perform repairs at your leisure, and comes with some pretty decent tax benefits as well.
Regardless of how you choose to expand, it is important that you do your research and understand the pros and cons that come with each strategy. Choose the one that fits your needs and helps you reach your goals the best.
- BRRRR Method
Finally, we have the BRRRR method; another great way to start growing your portfolio. The acronym BRRRR stands for: Buy, Rehab, Rent, Refinance, Repeat. This method works by finding a discount property that needs some TLC. By performing repairs and fixing the place up, you boost the home’s value. Once you have it rented you can start the process of refinancing it to help you be able to repeat the process all over. It’s a great way to get started.
Treat Investing Like a Business
Finally, any good investor will tell you that it is important to treat your investment portfolio like a business. Essentially, that is exactly what it is. No business owner would start a business without any goals or plans in place first. When it comes to investing, it is important that you have both long-term and short-term goals laid out to help you reach success. Be sure to outline what you hope to achieve by investing to gain a better idea of how to get there and what options you should choose.
Growing your SFR portfolio won’t happen overnight, but delaying the start will only delay the rewards. Jump in and begin your investment journey and start growing your portfolio, taking small steps if needed. Don’t lose valuable years or dollars that could be spent growing and expanding your portfolio and reach your goals sooner, rather than later.
Looking to expand your single family portfolio? Come check out our Marketplace of Single Family Rental Investments to see if there is one for you!
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