Positive fundamentals are driving the success of single-family rental and build-to-rent properties. As a result, more investors are considering entering the space. ConnectCRE recently gathered information about SFR investments and other considerations from Charles Goodman, VP of Bridge and DSCR Lending at Kiavi.
Q. What’s currently going on in the SFR and BTR space?
A. Single-family rentals and build-to-rent properties are holding their own compared to the for-sale market, which has slowed down as resale and new construction inventory builds. We’re still seeing national SFR rent growth around 4% year-over-year, even if it’s not the 10%–15% growth we saw during the pandemic boom.
SFRs are doing well because homeownership costs are so high right now, double the price of renting, nationally. In markets like Texas, where listings surged in recent years, we’re starting to see inventory levels taper off. That suggests a stabilization is underway, which could ease pressure on rents and bring back stronger growth over time. Some homeowners who aren’t getting the offers they want are choosing to rent their properties instead. That adds to the rental supply and puts some downward pressure on rents. It’s a more competitive leasing environment overall.
Q. What insurance considerations should SFR investors know about?
A. At a basic level, every investor should have three types of coverage: first, property coverage for rebuilding in case of damage or catastrophe. Next, liability insurance protects against lawsuits or accidents on the premises. And finally, loss of rent coverage to protect income if your property becomes uninhabitable. From there, you might need specialized coverage like builder’s risk (for major renovations), vacancy coverage, or short-term rental endorsements if you’re operating outside traditional long-term leases.
Also, if you’re closing during hurricane or wildfire season, insurers may put a pause on new policies. We encourage getting coverage bound early—30 to 45 days in advance—so that your closing isn’t delayed. Should you need to file a claim, consider the size of the claim and your deductible. For small issues like minor siding damage, it’s usually better to pay out of pocket. But for major events—fires, flood damage, serious liability—definitely file. Just be mindful of claim frequency, as it can impact your future coverage and premiums.
Q. What about foreclosures? Will that present some opportunities for investors?
A. Not in the short term. Despite media noise, foreclosure rates remain low. Homeowners are in strong equity positions, so forced selling isn’t widespread. Don’t count on distressed inventory—investors need to go upstream and build direct relationships with sellers earlier in the cycle.
Q. What should investors consider when entering new markets?
A. Job growth is the number one driver in our view. It underpins demand and long-term stability. Also, look at rental supply, affordability, and market fundamentals. Redfin’s data center is a great resource for checking for-sale and rental trends in any given area.
But keep in mind that real estate is extremely local. What works in one area might not translate to another. This could cause real challenges, whether it’s zoning, permitting, or what shows up on a preliminary title report. If you’re going out of state, you need someone on the ground that you trust. Local eyes can help you navigate everything, from regulations to building a reliable team of third-party vendors.
You also want to understand how your strategy fits the market and the neighborhood. Every location has its nuances, and going in blind can lead to costly missteps. Do your due diligence, and once again, work with partners who know the local landscape.
Q. Is the BRRRR (Buy, Renovate, Rent, Refinance, Repeat) strategy still effective in today’s environment?
A. Yes, the fundamentals still work. The key is using the right financing. Typically, you start with a short-term bridge loan to purchase and renovate the property. Once the rehab is complete and the unit is rented, refinance into a Debt Service Coverage Ratio loan. That helps you pay off the bridge loan—which usually carries a higher interest rate—and move into a longer-term loan once the property is stabilized.
The advantage here is potentially stronger cash-on-cash returns. If you renovate well and force some value creation, you may be able to recoup part of your initial investment or even pull out a little cash. At the end of the day, you’re left with a stabilized rental property and more flexibility for the next deal.
Q. Overall, what should SFR investors focus on?
A. Stick to the fundamentals. Build relationships with sellers, have your financing and insurance ready to go, and don’t wait around for a major foreclosure wave—it’s probably not coming. Homeowners have a lot more equity today, and we’re not seeing the same distress we did in past cycles. Investors who take a strategic and prepared approach tend to see the best outcomes.
Investors who are looking for properties outside their immediate area should be watching markets that are seeing strong demand but haven’t experienced a major construction boom. The cost to own a home nationally is now roughly twice as expensive as renting a decade ago. That affordability gap is pushing a lot of would-be buyers into the rental pool—especially in the SFR market.
An earlier version of this article is available on ApartmentBuildings.com.
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