Why do institutional investors focus on CRE and large apartment complexes rather than SFH?

Question

Does anyone know the reason behind this? While there are a couple of large investors (mainly REITs) focused on SFH and small multis, the investors in this market by and large are small investors.

Dmitri L. · Answer

interesting topic! The reason that I would not expect them to focus on SFH is - they start with large amounts of capital and need to put it to work. Placing a few (dozen/hundred?) million into 100k SFH means literally hundreds of deals - each with its own due diligence that must be done. It's simply much less work to do 10 100-units than 1000 SFH. Work costs money because you have to pay people to do it, so they want to avoid the overhead which cuts into potential profit.

As to the question of why they actually are - my best guess is that it's difficult to put money to work in any other way at the moment. And they are paying retail due to either not being very familiar with the business model, or because they expect the market to keep going up (sound familiar)?

Just my 2c thoughts, so take it FWIW

Dmitri

Paul Ewing · Answer

I bet a bunch of small investors in DFW would love for them to do that.  From what I hear they are really driving the SFR market in DFW to crazy levels.  Why they are paying close to retail prices is the question I have.