Think single-family rental homes are just for small-scale investors? Not anymore. Things are changing, and today there’s enough interest from large-scale and midsize investors alike to fully cement single-family rentals (SFR) as a viable asset class in and of itself.
Most institutional-level investors first began showing interest in SFR immediately following the housing market crash of 2008 when they began buying up foreclosed properties. Recent advances in technology, increasing transparency and the removal of operational difficulties have all given rise to the ability to not only invest in, but also manage properties from afar. All of these factors have combined to help establish SFR as a large-scale, fully-fledged asset class.
Today, we in the SFR industry are seeing all of these changes contributing to what I refer to as the rise of the midsize investor, or an investor who owns between 25 and 2000 homes.
Why so much interest in SFR?
It’s one investment that offers a number of distinct advantages — particularly cash flow and long-term appreciation. It’s also a great alternative investment. One analysis found that, historically, returns from SFRs have moved independently from the stock market, making it a great way to diversify funds.
Currently, single-family and two- to four-unit residences comprise more than 53% of U.S. rentals, representing about 23 million units. Additionally, an estimated 13 million new rental households are expected to form by 2030. Housing stock isn’t projected to keep up with this demand, meaning there’s great potential for investors who own income properties.
The Midsize Investor
During the Great Recession nearly a decade ago, investors began funneling money into the housing market, buying up and refurbishing millions of foreclosed homes. While many people thought they’d hold onto them until property prices had recovered and then sell and make a tidy profit, many of the homes have since been turned into lucrative rental properties.
Still, while institutional-level interest in SFR has grown as a whole in recent years, large-scale investors still account for a small percentage of total SFR investment activity. According to one analysis, these investors own less than 2% of all SFR investment properties and are active in less than 30 metro areas across the nation. Meanwhile, almost 90% of SFR inventory is owned by small-scale investors with fewer than 10 units. There appears to be a lot of room in the market for investors of any size to invest.
Today’s midsize investor buys a few properties at a time and manages them remotely. The advantage of this method is that it allows them to take a more nimble approach, trialing different housing markets to see how they’ll perform. It also allows them to diversify, investing in different markets to spread the risk.
Contact Jeff Cline at SVN | SFRhub Advisors
SVN | SFRhub Advisors
2400 E. Arizona Biltmore Circle
Phoenix, AZ 85016