SFR investing is one of the ways through which you can make a load ton of money in real estate. Especially in Pakistan, where real estate in Karachi has turned into a lucrative business opportunity both for an expert and a newbie investor.
As per data, more than a million listings happen monthly on Pakistan’s virtual and physical property exchanges. The data further explains that more than 40% of those homes targeted single-family systems that require no more than a one-floor house and all essential utilities. And in that, SFR investing comes into play.
Let’s dive into the topic.
SFR Investing Using an Example
SFRs are simple standalone, single-family rental properties that a single family buys for accommodation purposes. However, the concept is quite western, but as Pakistani, we are flexible with that. These simple standalone properties have nothing new that makes themselves in any way different than a traditional house.
But, from an investor’s perspective, SFR will change the whole real estate investment dynamics. According to data, more than 35% of rental properties belong to single-family rentals, and that rate goes up by 25% within the span of 2011-2022. That addresses the trend of changing human views towards their housing.
It’s evident from the study that people don’t see apartments, either well-built villas or huge, difficult-to-manage properties, as their first housing choice. Assessing and making decisions on this changing trend is really important for the investor, as the capital flows where the audience goes.
And according to experts, whether investors like it or not, SFR is the future of real estate investing.
Reasons to Invest in Single-Family Rental Properties
Following are the reasons why SFR is in the limelight of all investors’ attention and how you can reap monumental capital through that.
More Relaxation on Taxes
Taxes are the biggest stumbling block between an asset and an investor’s money. However, you can say that real estate is an exception to that. Typically, governments around the world are a bit reluctant to impose taxes on real estate acquisition due to various factors, one of which is huge economic benefits.
However, a low-taxation trend within real estate is going down in the developed world. For the countries that are still developing, such as Pakistan, that isn’t the case at all! Especially according to data, the whole real estate tax collection in Pakistan is equivalent to Mumbai’s total taxes. This shows how much dispensation real estate is receiving in Pakistan.
Thus, SFR investing comes quite comfortably in Pakistan pertaining to the freedom of taxes on properties. One can earn more on appreciation or rentals and, on the other hand, saves handsomely on taxes.
Real estate investment provides a dual stream of income: one through appreciation of the land and the second by the collection of rentals from tenants. Buying single-family rental homes provide you with both advantages. Considering the fact that medium sales of SFR homes have been going up for several years, the future looks promising, relating to appreciation rates.
Similarly, the increasing population gave birth to increasing demand in the housing sector. And we all know from the economy’s fundamental rule that price shall increase if the demand goes up.
Another significant report about property investing suggests that the average rental pricing is soaring at a rate of 12.5% a year; that’s another way to assess the massive potential of SFR investing.
Effortless Process Brings Consistent Cashflow
As a new investor, when you take baby steps into the market and toss your first beloved capital out of your pocket, SFR won’t disappoint you. Instead, it takes care of your investment and provides consistent cash flows. Plus, the investment type is really a beginner-friendly one and requires no hectic strategy curation, legal paperwork, property documentation, or anything of that sort.
Note: In a dire economic position, no one can ideally state how a situation would turn out for investors. Thus, the statement should be taken with a pinch of salt.
SFR Provides Hedge Against Inflation
Globally, the recession is swinging at its full pace. But, it’s not the recession that causes things to go haywire among citizens, but inflation. However, SFR investing can help you with crazy returns that can overcome the percentile amount at which inflation hits your town.
As per data, in the USA, inflation has reached 8.5%; the average increase in rental income is aviating at 20.5% in the last 12 months.
The data shows how using the SFR strategy; you can not only beat inflation but can also prepare yourself for its prolonged effect without having to worry about daily utilities.
More Financing Options
As SFR investing is pretty standard among investors, therefore, financing the property through bank loans, mortgages, government-backed loan schemes, or private lenders wouldn’t cause much of an issue. Moreover, interest rates on such loans are at a minimum, encouraging newcomers to take part without having to worry about anything.
When financing options are readily available at all banks, governments, and lenders, it significantly increases investors’ confidence in an asset, which ignites a stimulating effect on the country’s economy.
Better SFR Management Options
You can manage your SFA investments through a property management organization that can manage the property, collect rentals, order maintenance, resolve tenants’ queries, fill vacant units, and conduct an overall inspection of the real estate. Furthermore, if you’re an overseas Pakistani, you can order such services to take care of your asset while sipping coffee on your sofa.
Friendly For “Risk-Averse”
Having a risk-averse mentality is crucial in such economic times. But when we talk about SFR investments, the rules are simple. SFR works on the simple principle of supply and demand. And if you’re trying your luck in real estate, you should at least have a sound knowledge of this and other laws.
Volatility in real estate is defined as the rate at which appreciation or depreciation occurs. Both volatility aspects require much time to take effect and during which one can get enough leverage to make a good decision about what to do with their investment.
On the other hand, depreciation happens only if certain economic conditions are met – and those conditions have to satisfy specific prerequisites that are difficult to achieve even in a country like Pakistan. So, SFR investing is a pretty robust option when considering real estate investment.
Do Not Make These SFR Investment Mistakes
There isn’t any investment that is 100% secure and easy to execute. Single-family rentals aren’t any exception. They have their complexities and things to watch out for, which you’ll find below.
Taxes Can Become a Necessity
Although real estate is tax heaven for investors, experts are seeing developed countries continue to impose high levies on properties, whether it’s withholding tax, capital gain tax, plots / housing / apartment taxes, or whatnot.
It’s not late when Pakistan will recover from its economic crisis and would follow the same steps implemented by other countries. Thus, you shouldn’t always be looking to find a way to avoid taxation. Instead, get in touch with industry experts as new laws are rolled and new levies are applied so the consequences wouldn’t hit you out of the blue.
Illiquidity is a Major Issue
Just as volatility takes time to show its effect, particularly in real estate, the same can happen when you try to sell your house. Don’t set unrealistic expectations, such as buyers are ready to buy from you as you fold your sleeves and present your proposal. Things take time in this business, and when you try to sell your house, there may be a situation where you come empty-handed, especially in SFR investing, where buying and selling happen frequently.
Maintenance is Important
After buying the property, the first challenge that comes with it is its upkeep. Well, you can say that a property management guy can deal with it. But, the thing is, to them, it’s just another house; they may overlook delicate findings that you had spotted the day you bought the real estate. So, OWN your property like your first child because it’s a long-term investment.
The Right Way to Invest in SFR
You might be wondering if there’s any next-to-perfect strategy to invest in single-family rental homes. Yes, there are methods that you can utilize to amplify your investment capital and gain maximum by following the market’s best practices.
Leverage BRRRR Strategy
B-four-R is an old but effective strategy used for making property investments. The method explains ‘buy/build -> rehab (maintenance) -> rent it out -> refinance it after some time -> and, in the end, repeat the process.’ Let me further elaborate on the method.
First, you have to locate a property and buy it. Then, perform the required maintenance on the house. Once the property looks worthy of being on the sales page, rent it out right away. Refinance the property on newer terms pertaining to increasing rental rates overall in the country. In the end, after churning out handsome profits from the existing strategy, repeat the BRRRR approach.
Buy And Hold SFR Accommodations
Buy and hold is another great investment strategy that can be utilized in SFR investing. As the name suggests, you have to find single-family rental houses or plots and secure them where the signs are optimistic about potential growth. Having acquired the property, you have to hold it to the point where the appreciation rates can throw reasonable profit. In the meantime, you can also collect rental income on your property.
A relatively riskier investment strategy that includes discovering SFRs that can grow with a much quicker appreciation rate. Once such houses fall into one’s lap, they have to hold the property for some time and sell it as it gives out the profit. However, keep in mind that there’s a high chance that a flipping method can go wrong.
-> Learn more about six ways you can use to invest in real estate in Karachi.
Setup Your SFR Investing Organization
If you’ve mastered SFR investing, what’s stopping you from creating your own agency that guides newcomers in real estate? Or become a real estate wholesaler by advising investors and pool managers about locating and going into single-family rental homes investment.
SFR and STR: What’s The Difference?
SFR usually targets standalone housing units that are suitable and targeted at single-family. STR, short-term rentals, is a process using which a home is rented out to a family of any size for a short-term contract, usually for a month. SFR and STR are both can be utilized as an investment strategy. Similarly, LTR – long-term rentals usually build a contract term between 30-180 days. A lease is a prime example of LTRs.
Investments Options Other Than SFR
There are many ways you can directly or indirectly plunge into the real estate market. Some of them are:
- Real estate investment groups – REIGs
- Real estate investment trusts – REITs
- Residential real estate investment
- Commercial real estate investment
- Online real estate platforms
- Rental properties
- Raw lands
You have to understand that buying and selling land is a business that goes back many centuries. Over the years, new models have been developed, and humans have discarded ineffective and riskier approaches. Similarly, one of the ways using which real estate investments are carried out is SFR investing.
The trend of buying Real estate in Karachi is growing exponentially, and it’s a good time for you to focus on implementing various investment strategies, such as SFR investing and others. SFR comes with its prerequisites that, if not taken care of, can cost you your investment. So, it’s better to take precautionary measures to maximize your profits.
I hope you have learned something new in today’s blog, and if you did, drop a comment below for further queries. Or simply message us in the chat box located below on the right corner of the webpage.
Questions or concerns about real estate investments in Karachi? Connect with RAAS expert for smart future investments.