On the Horizon – Top Markets and Investment Asset Classes on the Rise

Hear from Mark Peterson, Audrey Carlson and other leading industry experts in our webinar, “On the Horizon – Top Markets and Investment Asset Classes on the Rise”, as they discuss how current rental market conditions, primary, secondary and tertiary markets, MSA market outlook, comparisons of asset classes and more. This webinar features a SFR, BFR and multi-family market update from Don Walker, courtesy of John Burns Real Estate Consulting.

If you would like a copy of the slides, please contact Don Walker from John Burns Real Estate Consulting at dwalker@realestateconsulting.com.

Webinar Q&A

Audience questions answered by featured speakers.

Q: Is a single site Build-for-Rent portfolio a better investment option than a scattered lot SFR portfolio and why?

A: The benefits of SFR scattered lot portfolios are expected lower costs and they are likely faster to market rather than entitling, developing lots, building homes, then leasing out – superior optionality when it comes time to sell the homes.  The single-family for-sale market is the most liquid real estate class in the country with 5M to 6M homes sold every year.   SFR scattered lot portfolios, however, experience less efficient management due to geographic issues and have likely higher R&M costs.

Build-for-Rent portfolios can create product that fits the needs of today’s renters regarding size, bedroom/bathroom configuration, finishings, etc. New product translates into lower R&M in the near to mid-term and concentration allows for more efficient management.  With these BFR portfolios, concentration risk increases and the costs and timing to get homes ready for leasing are more and longer than older scattered SFR homes.  There is a strong appetite for this product from investors, but it’s not nearly as liquid as selling into the broader existing home market. 

Q: What do you define as primary, secondary and tertiary markets?

A: There are primary, secondary, and tertiary metro areas and then within all of these MSAs one can argue there are primary, secondary, and tertiary markets.  Phoenix, Dallas, Houston, Atlanta are examples of primary.  San Antonio, Charlotte, Salt Lake are examples of secondary markets while markets such as Tucson, Savannah, Panama City may be considered tertiary.

The most prominent metrics are population growth, number of units sold, and dollar volume of units sold. There are a slew of other factors, but if we focus on population growth, primary is more than 5MM, secondary is 2MM to 5MM, and tertiary is less than 2MM. Again, these are rough ballparks and not singularly determinant of what a market is defined as. 

Q: When it comes to market appreciation versus the risk factor, do you think primary/secondary or tertiary markets are a better investment?

A: There are many factors to consider here.  How do growth rates compare?  Is the tertiary market growing rapidly and someday we may consider it a primary market – is Huntsville the next Nashville?  What is driving the job growth – is it diversified or is it dependent upon one sector and is that growth sustainable due to a local competitive advantage? 

Q: What are the top challenges you see SFR investors facing? What’s a good data-driven approach for SFR investing?

A: A top challenge is finding deals that make sense from a debt-service perspective, given the astronomical HPA most every market has seen. Dive into the market you are interested in — analyze and model population growth, drivers behind job growth, and other key metrics. And, perhaps most importantly, do not add a property for the sake of adding a property to your portfolio. The market will eventually normalize, and you do not want to have a portfolio built on top priced properties. 

Q: Which markets do you see mobile homes doing well vs not doing well?

A: Mobile home parks are a very established and recognized asset class that work in many markets. The largest obstacle to starting one today will be obtaining zoning. If the concept is expanded to include modular homes, meaning homes constructed at least partially offsite, but are traditionally built and are placed on a slab or foundation, then many markets would be appropriate. We have spoken to many groups exploring this option because it generally provides a quicker finish schedule, has the look and feel of a site-built home, and is generally subject to the same zoning.

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