Skip to content

Posted almost 10 years ago

The Future of Single Family Rentals?

MultiFamily Executive (MFE) was out this week with a piece called Homing In: Single-Family Rental Firms Ponder End Game exploring the business plans of the big institutional players to shed some light on where the sector is going. It's a great read for anyone in the sfr space... and something to keep an eye on for multifamily investors as well.

The Exec Sum I sent to our clients:

  • They (the big players; Waypoint, Invitation, Colony American, American Homes 4 Rent, etc.) want to establish the single-family rental as a new institutional asset class.
  • Sfrs (Single family residence) compose 35% of the country’s rental stock equaling nearly 15M units but institutional investors own only about 100,000 so far.
  • Sfr renters are the fastest growing household type in the country, surging 27% since 2008 to 13.7M today and they believe this shift is not transitory.
  • According to Census Bureau data, about 33% of today’s rental population is composed of single or two-parent families with one or more children.
  • Tighter mortgage lending standards, higher student loan debt, changing attitudes about homeownership versus renting, and the need for many workers to stay mobile if they want to remain employed are the main drivers (in addition to foreclosed homeowners needing to rebuild their credit).
  • This group may have a hard time finding an apartment that fits their needs for more bedrooms and quality public schools.
  • Many of the properties targeted are older, smaller and more humble than some might expect. At prices above $250k rental yields tend to be lower. (Quick back of the envelope says their avg. acquisition is about 150k)
  • The ideal asset is a 3bed/2bath 1,700-1,800sf house in a very high rental demand middle-class neighborhood with a good school district that's close to jobs. (The median size of new multifamily units has been running just over 1,000sf since 1999)
  • On a sf basis, rental rates for sfrs are about 30% less than multifamily rents and they believe that the gap can come down with institutional management (versus what mom and pops are doing).
  • Sfr renters tend to be more tied to schools and neighborhoods and stay longer than apartment renters. Retention rates are running about 70%, reducing leasing and make-ready costs.
  • Operationally there are two big challenges; comping rents and servicing a scattered portfolio. Cloud based technology, much of which they are developing themselves is how they think they can overcome them.
  • They are building their own revenue management systems to handle the fact that even in the same neighborhood houses have different floor plans and may be different ages.
  • They are also building pad and phone accessible systems for their leasing people and maintenance teams to reduce the 'Windshield Time' of driving back and forth to the office.
  • For mom and pops to compete, there needs to be large scale sfr property management firms and Pinnacle (which manages about 135k units of multifamily) is looking at jumping in.
  • The article goes on to discuss who did and didn't get their IPO done but all the big firms swear they're in it for the long haul (maybe).
  • One of the potential upsides for mom and pops (that's you if you don't have a thousand houses or institutional money) in all this is that if you assemble a dozen or two units you may be able to exit with a portfolio sale instead of selling them one by one.

Good hunting-


Comments