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In recent years, investing in single-family rental homes has become one of the most popular real estate investment trusts (REITs).
Instead of focusing on commercial property sectors, investors buy shares of homes, typically in large cities, to rent to families.
The prevalence of single-family rental REITs allows people to live within a particular area, even if they can’t afford to buy property independently.
Because single-family rental (SFR) REITs are hands-off investments that provide a steady income, it’s unnecessary for investors to act as landlords.
Understanding Single-Family Rental REITs (SFRs)
You can trade single-family rental REITs publicly on the Nasdaq Stock Market. If you decide to buy shares in REITs, it’s unnecessary to purchase property and oversee tenants to make income from renters.
Buying shares in public REITs allows you to withdraw your investment when you need the funds, while private company investments aren’t liquid.
How Single-Family Rental REITs Work
A REIT is a real estate investment trust. These properties provide income for the investors, most often in the form of apartment rent, hotel income, warehouse rentals or business properties.
Single-family rental REITs are unique because they allow people to invest in a property without owning the home themselves.
Instead, they own shares in the parent company. If you buy shares in a single-family REIT, you get benefits similar to owning public stock.
You can receive dividend payments without needing to manage the rental yourself. Single-family home REITs also allow for portfolio diversification.
Since they require lower capital, SFR REITs are accessible to more investors — especially beginners. There’s no need to purchase a rental property upfront, meaning you need less capital.
You can buy shares from a public company and start earning money.
List of Best Single-Family Home REITs
You can easily learn about the background and process of investing your funds in a REIT to make money.
The following companies are the best single-family home REITs on the market:
Invitation Homes (INVH)
Invitation Homes Inc. is a company founded in 2012 that leases single-family homes. It typically focuses on cities to keep residents near their jobs and the children in quality school districts to improve each family’s overall well-being.
- Types of Investments: Single-family housing.
- Markets: Southeastern and western United States.
- Dividend Yield: 2.85% annually.
- Best: Single-family Rental REIT.
- Why we recommend Invitation Homes: INVH owns over 80,000 homes in the southeastern and western regions of the United States. The company keeps its homes in top condition and include smart home technology to give residents the best rental experience.
American Homes 4 Rent (AMH)
American Homes 4 Rent, founded in 2012, started buying homes that stayed empty for too long, turning them into cozy rental houses for families in need.
The company expanded its business model to include AMH Development, which builds homes and communities in areas without enough properties.
- Types of Investments: Single-family rentals.
- Markets: 22 states across the country.
- Dividend Yield: 2.30% annually.
- Best: Single-family Home REIT.
- Why we recommend American Homes 4 Rent: AMH owns 55,000 homes in 22 states, and Bloomberg recently publicized its initial public offering. Because the company also employs homebuilders, it’s constantly offering new properties.
Tricon Residential (TCN)
Tricon Residential is one of the more established REIT companies on this list. Founded in 1988, the company joined the Toronto Stock Exchange in 2010 and the New York Stock Exchange in 2021.
- Types of Investments: Single-family housing and multifamily rental apartments.
- Markets: United States and Canada.
- Dividend Yield: 1.96% annually.
- Best: Single-family Residential REIT.
- Why we recommend Tricon Residential: TCN has over 30 years of REIT experience, making the company a stable choice for institutional investors. TCN has properties across North America, so it can help more people than other limited REITs.
NexPoint Diversified (NXDT)
NexPoint Diversified is a real estate company that covers every property type in the rental market, so you’ll always find an investment possibility.
They have offices and properties across the United States and pay high dividends due to their diverse REIT portfolios.
- Types of Investments: Single family and multifamily rentals and industrial, retail and hospitality properties.
- Markets: Every state.
- Dividend Yield: 5.60% annually.
- Best: Single-family REIT Fund.
- Why we recommend NexPoint Diversified: NXDT has the highest dividend yield and has properties in every state. You can invest in single-family rentals, medical properties, the hospitality industry, and even self-storage locations through one REIT company.
Benefits of Single-Family Home REITs
Many investors appreciate the numerous benefits of investing in single-family home REITs, especially compared to owning a rental property.
Check out what makes this investment an excellent choice:
Passive investing: Single-family home REITs are a great source of passive income because it’s unnecessary for you to be the property’s landlord.
You own shares in the REIT company, which pays you dividends annually.
Asset appreciation: Real estate is one investment that appreciates year over year, so owning shares of a single-family rental REIT pays off, especially compared to exchange-traded funds.
REITs will appreciate over five years, even when the real estate market cools off, because families need stable rental homes.
Low vacancy rates: Single-family rental REITs have lower vacancy rates than apartments, guaranteeing investors a more reliable passive income.
There’s typically less turnover for families living in stable homes than in apartments.
Dividend income: REITs pay annual dividends to the investors, which they can use as income. This payout makes REITs preferable to growth stocks, which don’t pay dividends.
Tax benefits: If you invest in a single-family rental REIT, you can claim the qualified business income deduction on your taxes.
You’ll deduct 20% of your pass-through profits, which reduces your taxable income.
Low supply: It’s hard for many families to achieve homeownership, so they rely on rental properties, which are often in low supply.
Owning shares in a single-family REIT makes it likely that a family will rent your property, meaning you’ll earn money.
Risks of Single-Family Home REITs
As with any investment, there will be some risks involved. Important disclosures that might impact your SFR REIT may help you feel prepared to invest in this type of property.
The following are some potential disadvantages and risks of these investments:
Affected by high interest rates: High interest rates negatively impact the REIT mortgage value, which causes the investors’ share prices to decline even if the home’s price doesn’t change.
Taxed on dividend income: Investors may pay higher taxes because the IRS doesn’t consider REIT dividends qualified.
Illiquidity: If you invest in a private REIT, you’re making a long-term commitment, which means your funds aren’t liquid.
You’ll receive annual dividends from your investment, but you can’t access your portion to improve your cash flow.
Housing collapse: The housing collapse is a risk that impacts SFR REITs because it pushes more families into apartments.
These buildings, typically owned by large-scale real estate firms, can charge less for rent and have more flexible leases than single-family homes.
Decreasing rental rates: When an SFR REIT lowers its rental rates due to the housing market or a financial crisis, the amount paid to investors decreases.
People planning on receiving income from a single-family home REIT can’t rely on that money when rental rates are in flux.
Should I Invest in Single-Family Rental REITs?
Single-family rental REITs are an excellent way for beginning or experienced investors to get a piece of the real estate market. There’s no need to have the capital to buy a home yourself because you’re investing in market shares through a real estate company.
With SFR REITs paying annual dividends, it’s an investment worth checking out. Consider starting with the companies listed above to make the most of your money and earn passive income.
SFR REIT FAQs
You’ve learned about single-family home REITs, but you want as much information as possible before investing.
Check out these frequently asked questions for quick answers:
Are REITs as good as rental properties?
Most investors find that REITs are better than rental properties. REITs require less effort than rental properties, generate higher revenue and can cover all real estate sectors.
What is the difference between a REIT and a rental property?
You need capital to buy a rental property, then you must manage the property or hire a landlord to do the work for you.
REIT sectors provide hands-off investments, allowing you to own property shares, which means you’ll pay less overall.
Who should invest in a single-family home REIT?
Anyone can invest in a single-family home REIT because it doesn’t require much of an investment upfront and pays off steadily for as long as you own shares.
Many people choose to invest in SFR REITs as a form of stable income or to establish a retirement fund.