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Investing in single-family homes is often a good way to build wealth and generate monthly cash flow.

Real estate has proven to be an economic bulwark when stocks and bonds experience downturns. Even in late 2024, with the average sales price of homes in the U.S. slightly down from its 2022 historic high, the average price is almost $100,000 above where it stood at the start of this decade, according to the Federal Reserve Bank of St. Louis, which tracks the data.

Single-family rental homes have lots of upsides for an investor, but there are also a few reasons to look before you leap.

What Is a Single-Family Home?

The popular image of a single-family home is a stand-alone, one-dwelling structure with its own utilities, entrance, exit, and access to the street. The owners own both the building and land it sits on, so condos do not count.

Some government agencies expand this definition to include properties of up to four units, such as duplexes, as well as townhouses.

Why Invest in Single-Family Homes?

Buying investment property offers two key benefits to long-term investors:

•   the potential for capital appreciation

•   immediate cash flow

Let’s walk through some of the key motivators for investing in single-family homes.

Financing

Single-family homes are typically easier to obtain financing for than multifamily homes of five or more units.

A multifamily property meeting that criterion requires a commercial loan, which usually has a higher interest rate and shorter term than a residential mortgage. (Note: SoFi does not offer commercial loans; it does provide loans for residential investment properties of four or fewer units.)

Lenders often require at least 20% down for an investment property. It could be higher, depending on the borrower’s credit score and savings. Then again, there are creative ways to buy a multifamily property with no money down.

Less Volatility

The market for single-family homes is relatively stable and tends to grow more smoothly over the long run compared with other types of homes.

Unlike commercial real estate and apartments, the demand for single-family homes tends to remain relatively strong at all stages of the economic cycle.

Steady Income

Single-family homes may be rented out for longer terms than apartments and usually sit vacant for less time thanks to the steady demand for single-family housing.

Some contend that single-family rentals feel more like proper homes for tenants and therefore are better cared for than apartments.

You’re also more likely to find more families renting single-family homes than individuals. Families may be more likely to extend the lease if they end up loving the neighborhood and schools, as in a coveted suburb.

Tangible Asset

Many people seek to diversify portfolios with different types of investments. Unlike stocks and bonds, which represent shares of ownership and rights to dividend payments from a company, real estate is a tangible asset.

The tangible factor gives you something physical to hold on to that’s unlikely to disintegrate over the long term. Stocks, bonds, and other intangible investments require the underlying company to remain a going concern.

Inflation Hedge

Inflation is the creeping impact of price increases, and when there are concentrated bouts of it over a short period of time, it can rapidly erode the purchasing power of your assets.

Housing has often been touted as an inflation hedge because it has historically held its real value during inflationary markets. This could be because of the following reasons:

1.    Most homebuyers lock in their purchase price through a mortgage.

2.    Rental agreements typically last one or two years, which allows homeowners to gradually raise rents to keep pace with inflation.

3.    Home values typically appreciate over the long run thanks to the intrinsic value of the house and land.

Return on Investment

Thanks to steady demand, single-family homes can match or even exceed the return on investment (ROI) of bigger multifamily properties, with lower volatility than stocks or bonds.

Potential ROI across different real estate properties can be compared using a capitalization rate (cap rate) calculation: net operating income divided by current market value.

Net operating income is your gross annual income from the property minus operating expenses (like repair costs, groundskeeping, property taxes, insurance, utilities not paid by tenants, and any property management fees). Home mortgage loan payments are not included in the net operating income formula.

Diversification

Single-family homes could be a good addition to a portfolio of stocks and bonds, but why does portfolio diversification matter anyway? Because by diversifying assets, you may offset a certain amount of risk and improve returns. When stocks or bonds fall, real estate prices can take much longer to follow.

Things to Know Before Investing in Single-Family Rentals

Because of the high acquisition cost of single-family homes, you’ll want to conduct proper due diligence on your local housing market and target property before you buy. As with all investments, be cautious when investing a significant portion of your cash in one place.

Your Numbers

While the projected rental income on a property looks attractive at a glance, bear in mind that maintenance costs and surprises should be factored in. Vacancy rates, legal issues with tenants, and unexpected repairs can sap your returns over time.

It’s smart to factor in a cash buffer to ensure that money is available on short notice.

Your Target Rental and Housing Market

While the rental income streams of New York and California offer much higher revenue potential, keep in mind that the costs of owning real estate in those areas is enormous as well.

Income is only one side of the rate of return calculation, so make sure you have a good handle on the expenses as well. You can only do that by thoroughly investigating your target housing market and relying on the home appraisal.

The local job market, its dominant industries, and the dependability and growth of local businesses also will shed light on how stable a given market will be over time. Good schools, safe cities, and proximity to workplaces and attractions matter to many renters.

If you’re looking to use the property as a short-term rental, check out the local ordinances, which may prohibit you from doing so.

The 1% and 50% Rules

The 1% rule is a back-of-the-envelope calculation to estimate whether your rental income strategy will be profitable. If the estimated rental income on the property is at least 1% of its purchase price, you should theoretically be able to generate cash flow. If your purchase price was $300,000, for example, the monthly rent should be at least $3,000, according to the rule.

The 50% rule states that you should expect the expenses on your real estate investment to make up approximately 50% of the gross income generated. That’ll give you a quick and dirty estimate to help you start ballparking your net returns.

Obviously, the exact numbers are more complicated. When you have time, you’ll want to run a full comparison of revenues vs. potential costs of your venture.

Your Strategy

This one’s a little more nuanced, as it depends on your goal amount, the time horizon, and your risk tolerance.

Are you looking to build a rental home empire or are you just looking for a little extra income to supplement your retirement?

Do you intend to tap home equity to buy one or more investment properties? Do you plan to flip or hold the home?

How to Invest in Single-Family Homes

If you’re confident that buying a single-family home is the right choice for you, there are a few ways you can invest:

Buy It Yourself

This is the most capital intensive and least liquid route. Buying a single-family home in the neighborhood of your choice will net you reward as well as the risk that comes with any property.

If you’re handy, you can buy a fixer-upper or a HUD home (bidding opens to investors after owner-occupants are given a chance) and renovate it into turnkey condition.

The expense of any contractors or property managers will need to be factored in.

Invest Through a Crowdfunding Platform

If you don’t have copious amounts of capital, you can still fund real estate investment projects through online crowdfunding platforms like Fundrise. These allow you to diffuse risk while taking part in more aggressive investments than you might have been willing to by yourself.

Keep in mind that you’ll need to share the benefits with all investors who partake in the process. Another shortcoming is that your funds may be tied up for an extended period of time, which varies by project.

Invest in a Real Estate Investment Trust

REITs are corporate entities that specialize in purchasing and financing pools of real estate investments on behalf of their clients. They sell shares that are publicly traded and can specialize in any number of sectors or strategies.

The big benefit of REITs is that they’re one of the most liquid real estate investments out there, as you can buy or sell your shares at almost any time on the open market. However, the market value of each share will fluctuate daily.

In the realm of investment opportunities, REITs often provide better returns than fixed-income assets like bonds, but REITs carry higher risk.

There are REITs that specialize in buying and operating single-family rentals. These REITs pay out a major portion of their cash earnings to shareholders.

The Takeaway

When done right, your single-family home investment can offer growth and income and diversify your portfolio. You can start with lower levels of capital by investing in REITs or crowdfunding platforms, but any gains will be diluted. It may be easier to obtain a mortgage for a one-family home, or a property that is four units or fewer, than for a larger multiunit property.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Is renting out a single-family home worth it?

It can be. Appreciation and rental income have made single-family homes attractive to investors. Multifamily properties provide more rental income streams but also require more property and tenant management.

How do you value a single-family home rental?

There are a few ways. One is to look at recent comparable sales. Another is to calculate the capitalization rate (net operating income divided by property price or value). A third is to use the gross rent multiplier approach (property price divided by gross rental income).

How fast does the value of single-family homes appreciate?

It depends on the market. Lately, appreciation has decelerated. But the median sales price of a house in the last quarter of 2024 was still about $100,000 more than it was five years before.

Photo credit: iStock/Phynart Studio

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q125-022

Before signing your closing documents and walking away with the keys to your new home, it’s important to reexamine the final details of the mortgage. Your lender is required to provide this information ahead of closing in the form of a mortgage closing disclosure.

Paperwork fatigue aside, the closing disclosure deserves careful review, as it outlines the mortgage terms and conditions you’re agreeing to.

What Is a Closing Disclosure?

You may have weighed the different mortgage types and then homed in on one that suited you best.

Maybe you got mortgage preapproval before zeroing in on a property you couldn’t live without (for a while, at least). Now the deal is almost buttoned up.

Here comes the closing disclosure, a five-page form from your lender outlining the home mortgage loans terms, including the loan principal, interest rate, and estimated monthly payment. It also lays out how much money is owed for closing costs and the down payment.

Lenders are required by federal law to provide the mortgage closing disclosure at least three business days ahead of the closing date.

Recommended: Understanding Mortgage Basics

Why the Closing Disclosure Is Important

The mortgage closing disclosure contains all the final terms of your home loan, like how much you pay each month and over the life of the loan. You probably had many mortgage questions for your lender, but all the conditions of your loan, such as your ability to refinance or pay off the loan early, are detailed here.

These specifics can have a significant impact on your personal finances. Just one percentage point difference in the interest rate can cost you thousands in the long run.

When you receive the closing disclosure from your lender, this is a final chance to review the fine print and compare everything with the loan estimate, the three-page document with the loan amount, interest rate, and other key information provided by your lender after you applied for a mortgage.

You may have obtained multiple loan estimates when shopping for a mortgage, but you’ll only get a closing disclosure from the lender you chose to finance with.

Recommended: Mortgage Help Center

What’s in the Closing Disclosure?

Visual learners, rejoice: The U.S. government’s Consumer Financial Protection Bureau maintains a sample closing disclosure with an accompanying checklist and tips on how to read a closing disclosure.

Here’s a breakdown of the components in the closing disclosure.

Loan Terms

The terms include the loan amount, interest rate, and the monthly principal and interest you’ll pay. This section notes if the loan has a prepayment penalty for paying off the mortgage early (a rarity these days) or a balloon payment, a one-time fee due at the end of the loan (ditto).

The closing disclosure will note with a “yes” or “no” whether the amount for any of these items can increase after closing.

Projected Payments

This section shows the factors used for the payment calculation, including the principal and interest, any mortgage insurance, and estimated escrow to pay property taxes, homeowners insurance, and any flood insurance. These add up to estimated total monthly payment for the mortgage.

If you don’t use an escrow account, the bottom of this section will show the monthly costs for property taxes, homeowners insurance, and homeowners association (HOA) dues, if applicable.

Checking these numbers against the original loan estimate from your lender is good practice.

Costs at Closing

Top of mind for many borrowers is the amount of cash needed to close. Usually, you can expect closing costs to be 2% to 5% of the home purchase price.

This section identifies the “cash to close,” which represents the closing costs plus the down payment owed by the borrower.

Loan Costs

Flipping to Page 2, this section provides a summary of expenses associated with taking out the loan. The costs consist of the origination fee, application fee, underwriting fee, and mortgage points if you’ve chosen to purchase any.

Additional costs are categorized under “services borrower did not shop for” and “services borrower did shop for.” The former includes services arranged by the lender, like the appraisal fee, while the latter refers to services the borrower had a choice in procuring, such as the title search and pest inspection fee.

Other Costs

There are other costs that may be due at signing, such as taxes and government fees, prepaids, escrow payments, and HOA fees.

Ensure that each amount is accurate and correctly entered as either borrow-paid or seller-paid.

Calculating Cash to Close

The table in this section shows a side-by-side comparison between the loan estimate and final dollar amount needed to close.

The calculation will account for any deposits paid by the borrower and seller credits negotiated as part of the deal.

Summaries of Transactions

This section provides a detailed look at what the borrower and seller are paying at closing. Costs prepaid by the seller, such as property taxes and HOA fees, may be adjusted to show what portion is owed by the borrower.

Loan Disclosures

Your mortgage comes with conditions, which are outlined on Page 4 of the closing disclosure. You’ll see which apply based on the box that’s checked for each.

Loan Calculations

On the final page, there are loan calculations showing the total amount you’ll pay over the life of the loan, as well as the finance charge, amount financed, annual percentage rate, and total interest percentage.

If you’re just looking into home loans, a mortgage calculator can estimate your monthly payments and total interest paid over the loan term.

Other Disclosures

The lender must disclose other characteristics of the mortgage, if applicable. They include the appraisal, contract details, liability after foreclosure, ability to refinance, and tax deductions.

Contact Information

Refer to this section if you need to contact the lender, brokers, or settlement agent involved with your mortgage.

Confirm Receipt

Signing the mortgage closing disclosure indicates that you received the form, not that you agree to the terms and accept the loan.

What Is the Three-Day Waiting Period?

As of 2015, the Consumer Financial Protection Bureau’s “Know Before You Owe” mortgage rule requires lenders to provide the mortgage closing disclosure at least three business days before closing.

This aims to give borrowers plenty of time to review the final loan terms, ask their lender any clarifying questions, and prevent unexpected costs at closing.

There are a few scenarios that could change the closing disclosure timeline. Your lender must provide another closing disclosure, thus granting three more days, if one of the following issues occurs:

•  A change in the loan APR (one-eighth of a percentage point or more for a fixed-rate loan or one-quarter of a percentage point for an adjustable-rate mortgage)

•  Addition of a prepayment penalty

•  A change in the loan product

How to Check Your Closing Disclosure

All five pages of the closing disclosure contain key information for the borrower to review. It may be helpful to go line by line with your loan estimate in hand to compare the final terms against what the lender previously provided.

Here are a few important items to pay attention to:

•  Review your name and the property information.

•  Check that the loan description and amount match the loan estimate.

•  Make sure that the interest rate is unchanged if you locked it.

•  Ensure you understand all the fees and any changes to them.

What Can and Can’t Change on the Closing Disclosure

There are some costs that can’t be changed on the closing disclosure, while others may increase by a certain percentage or by any amount.

Unless there’s a change in circumstances on the loan, changes can’t be made to the following:

•  Transfer taxes

•  Fees paid to the lender for a required service

•  Fees paid for a required service that the borrower wasn’t allowed to shop separately for

Recording fees and costs for required services from a lender’s written list of providers may not increase by more than 10%.

There are other costs that can change by any amount at any time, including:

•  Prepaid interest, property insurance premiums, or initial escrow deposits

•  Fees for required services by the lender that the borrower shopped separately for

•  Fees for optional third-party services

•  Note that your interest rate can fluctuate if it’s not locked or due to changes on your mortgage application.

What to Do if There’s an Error on the Closing Disclosure

It’s important to notify your lender or settlement agent of any errors on the closing disclosure.

Redoing the closing disclosure could delay the closing and affect your interest rate if your mortgage rate lock expires.

The Takeaway

The mortgage closing disclosure gives a detailed overview of your loan terms and closing costs. Review it promptly with your loan estimate at hand. If you’re uncertain of any information, reach out to your lender to go over the closing disclosure as soon as possible.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Does a closing disclosure mean I’m approved?

The loan is approved before you receive the closing disclosure, but a significant change to your credit, income, or debt before closing could affect your approval.

Can you waive the three-day closing disclosure?

You can waive the three-day closing disclosure in the case of a personal financial emergency, such as losing the home if the mortgage doesn’t close in time.

How long after the closing disclosure do you close?

You can close three business days at the earliest after receiving the closing disclosure. Errors on the closing disclosure could delay the process.

Can you be denied after the closing disclosure?

Yes. A dramatic change in your personal finances could cause a lender to reject your mortgage. It’s a good idea to try to avoid changing jobs or taking on new debt near the end zone.

Photo credit: iStock/Khosrork

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q125-025

Ever dream of leaving your job to pursue a project you’ve always been passionate about, like starting your own business? Or going back to school without taking out student loans? What about the option to retire at age 50 instead of 65 without having to worry about money?

Any of these opportunities could happen if you’re able to achieve financial freedom — having the money and resources to afford the lifestyle you want.

Intrigued by the idea of being financially free? Read on to find out what financial freedom means and how it works, plus 12 ways to help make it a reality.

What Is Financial Freedom?

Financial freedom is being in a financial position that allows you to afford the lifestyle you want. It’s typically achieved by having enough income, savings, or investments so you can live comfortably without the constant stress of having to earn a certain amount of money.

For instance, you might attain financial freedom by saving and investing in such a way that allows you to build wealth, or by growing your income so you’re able to save more for the future. Eventually, you may become financially independent and live off your savings and investments.

There are a number of different ways to work toward financial freedom so that you can stop living paycheck-to-paycheck, get out of debt, save and invest, and prepare for retirement.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

12 Ways to Help You Reach Financial Freedom

The following strategies can help start you on the path to financial freedom.

1. Determine Your Needs

A good first step toward financial freedom is figuring out what kind of lifestyle you want to have once you reach financial independence, and how much it will cost you to sustain it. Think about what will make you happy in your post-work life and then create a budget to help you get there.

As a bonus, living on — and sticking to — a budget now will allow you to meet your current expenses, pay your bills, and save for the future.

2. Reduce Debt

Debt can make it very hard, if not impossible, to become financially free. Debt not only reduces your overall net worth by the amount you’ve got in loans or lines of outstanding credit, but it increases your monthly expenses.

To pay off debt, you may want to focus on the avalanche method, which prioritizes the payment of high-interest debt like credit cards.

You might also try to see if you can get a lower interest rate on some of your debts. For instance, with credit card debt, it may be possible to lower your interest rate by calling your credit card company and negotiating better terms.

And be sure to pay all your other bills on time, including loan payments, to avoid going into even more debt.

3. Set Up an Emergency Fund

Having an emergency fund in place to cover at least three to six months’ worth of expenses when something unexpected happens can help prevent you from taking on more debt.

With an emergency fund, if you lose your job, or your car breaks down and needs expensive repairs, you’ll have the funds on hand to cover it, rather than having to put it on your credit card. That emergency cushion is a type of financial freedom in itself.

4. Seek Higher Wages

If you’re not earning enough to cover your bills, you aren’t going to be able to save enough to retire early and pursue your passions. For many people, figuring out how to make more money in order to increase savings is another crucial step in the journey toward financial freedom.

There are different ways to increase your income. First, think about ways to get paid more for the job that you’re already doing.

For instance, ask for a raise at work, or have a conversation with your manager about establishing a path toward a higher salary. Earning more now can help you save more for your future needs.

5. Consider a Side Gig

Another way to increase your earnings is to take on a side hustle outside of your full-time job. For instance, you could do pet-sitting or tutoring on evenings and weekends to generate supplemental income. You could then save or invest the extra money.

6. Explore New Income Streams

You can get creative and brainstorm opportunities to create new sources of income. One idea: Any property you own, including real estate, cars, and tools, might potentially serve as money-making assets. You may sell these items, or explore opportunities to rent them out.

7. Open a High-Yield Savings Account

A savings account gives you a designated place to put your money so that it can grow as you keep adding to it. And a high-yield savings account typically allows you to earn a lot more in interest than a traditional savings account. Some high-yield savings accounts may offer an 3.00% APY compared to the 0.41% APY of traditional savings accounts.

You can even automate your savings by having your paychecks directly deposited into your account. That makes it even easier to save.

8. Make Contributions to Your 401(k)

At work, contribute to your 401(k) if such a plan is offered. Contribute the maximum amount to this tax-deferred retirement account if you can to help build a nest egg. In 2024, that’s $23,000, and in 2025, that’s $23,500, not including catch-up contributions available to those 50 and above.

If you can’t max out your 401(k), contribute at least enough to get matching funds (if applicable) from your employer. This is essentially “free” or extra money that will go toward your retirement.

9. Consider Other Investments

After contributing to your workplace retirement plan, you may want to consider opening another investment retirement account, such as an IRA, or an investment account like a brokerage account. You might choose to explore different investment asset classes, such as mutual funds, stocks, bonds, or exchange-traded funds.

When you invest, the power of compounding returns may help you grow your money over time. But be aware that there is risk involved with investing.

Although the stock market has generally experienced a high historical rate of return, stocks are notoriously volatile. If you’re thinking about investing, be sure to learn about the stock market first, and do research to find what kind of investments might work best for you.

It’s also extremely important to determine your risk tolerance to help settle on an investment strategy and asset type you’re comfortable with. For instance, you may be more comfortable investing in mutual funds rather than individual stocks.

10. Stay Up to Date on Financial Issues

Practicing “financial literacy,” which means being knowledgeable about financial topics, can help you manage your money. Keep tabs on financial news and changes in the tax laws or requirements that might pertain to you. Reassess your investment portfolio at regular intervals to make sure it continues to be in line with your goals and priorities. And go over your budget and expenses frequently to check that they accurately reflect your current situation.

11. Reduce Your Expenses

Maximize your savings by minimizing your costs. Analyze what you spend monthly and look for things to trim or cut. Bring lunch from home instead of buying it out during the work week. Cancel the gym membership you’re not using. Eat out less frequently. These things won’t impact your quality of life, and they will help you save more.

12. Live Within Your Means

And finally, avoid lifestyle creep: Don’t buy expensive things you don’t need. A luxury car or fancy vacation may sound appealing, but these “wants” can set back your savings goals and lead to new debt if you have to finance them. Borrowing money makes sense when it advances your goals, but if it doesn’t, skip it and save your money instead.

The Takeaway

Financial freedom can allow you to live the kind of life you’ve always wanted without the stress of having to earn a certain amount of money. To help achieve financial freedom, follow strategies like making a budget, paying your bills on time, paying down debt, living within your means, and contributing to your 401(k).

Saving and investing your money are other ways to potentially help build wealth over time. Do your research to find the best types of accounts and investments for your current situation and future aspirations.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

How can I get financial freedom before 30?

Achieving financial freedom before age 30 is an ambitious goal that will require discipline and careful planning. To pursue it, you may want to follow strategies of the FIRE (Financial Independence Retire Early) movement. This approach entails setting a budget, living below your means in order to save a significant portion of your money, and establishing multiple streams of income, such as having a second job in addition to your primary job.

What is the most important first step towards achieving financial freedom?

The most important first step to achieving financial freedom is to figure out what kind of lifestyle you want to have and how much money you will need to sustain it. Once you know what your goals are, you can create a budget to help reach them.

What’s the difference between financial freedom and financial independence?

Financial freedom is being able to live the kind of lifestyle you want without financial strain or stress. Financial independence is having enough income, savings, or investments, to cover your needs without having to rely on a job or paycheck.

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