SFR: Birth of a Category


In the dorky world of real estate economics, the creation of a new housing category should be a major event, on par with, say, the discovery of a new solar system or the cloning of a pig.

Strangely, single family rentals (SFR), even though they are now a multi-million property segment of the nation’s housing stock, have been the Rodney Dangerfield of housing.  They’ve receive nowhere near the respect they deserve.  Perhaps that’s because SFRs are entirely the creation of a new breed of low key Main Street real estate investors and have, until recently, escaped the attention of Washington politicians and Wall Street financiers.

In recent months, policy-makers and the media have discovered that something huge is going on in the way millions of American families are housed.  The elephant in the room was finally too big to ignore.

Part of the problem was that there simply aren’t any credible numbers that reporters need to create a context.  They knew a lot of foreclosures were being converted to rentals but had no way of knowing because almost no one was keeping score.  Even today, I am not aware of a national data provider that tracks SFRs apart from multifamily (apartments).

Two years ago, probably the first national site to take notice of the SFR boom, Calculated Risk, quoting from Census Bureau data, figured that there were 3.60 million homes originally built for owner occupancy that were being utilized as rental.  That’s about three-quarters the number of existing homes sold in the entire nation last year.

Last July, MarketWatch, a piece by Dawn Wotapka headlined “Single-family rentals are housing bust’s stars,” cited Census data from Zelman Associates that from 2005 to 2010, single-family rentals grew at 21 percent versus just a 4 percent increase in total housing units. In the hardest hit markets, such as Nevada, Arizona and Florida, single-family rental units increased 48 percent, while apartment units were virtually unchanged.

Then, in August, the Federal Housing Finance Administration, the folks who oversee Fannie Mae and Freddie Mac, asked for comments on a proposed rule listing options for disposing of the thousands of foreclosures piling up on the two GSEs books.  Most of the 4,000 comments FHFA received by December advocated doing exactly what thousands of entrepreneurs are doing—fix ‘em up and rent ‘em out.

Now private equity funds are taking notice, according a story on the Wall Street Journal last week. The fund, GI Partners in Menlo Park, CA, plans a $250 million investment in Waypoint Real Estate Group, an Oakland-based company that buys foreclosed homes at discounts and rents them out to tenants. The investment is among the largest to date by an institutional investor in the single-family rental space.

Even the Federal Reserve has entered the fray.  “In contrast to the market for owner-occupied houses, the market for rental housing across the nation has recently strengthened somewhat,” understated the Fed in a white paper released last week.  “The price signals in the owner-occupied and rental housing markets–that is, the decline in house prices and the rise in rents–suggest that it might be appropriate in some cases to redeploy foreclosed homes as rental properties. In addition, the forces behind the decline in the homeownership rate, such as tight credit conditions, are unlikely to unwind significantly in the immediate future, indicating a longer-term need for an expanded stock of rental housing.”

Perhaps all this attention and heightened awareness will produce something useful for the SFR marketplace, where good, credible information is in short demand.  A first step would the recognition that SFR is a distinct category:

SFRs appeal to a different market.  SFR tenants have about as much in common with multifamily as the Brady Bunch has with Friends.

Single family homes should rent at a premium.  They provide more living space, more outdoor space, neighborhoods that are more residential in nature, amenities like parking, gardens and pets, quiet, privacy, etc.  Has anyone done market research on how much more SFR tenants would or should pay above multifamily rates?

SFR marketing and management is still an emerging business.  I know of only one national site dedicated to SFR listings. In most other rental or ownership sites, SFRs are step children, often difficult to search for and with little how-to information for either tenants or owners.  In many markets, investors have limited options if they don’t want to manage their properties themselves.

Data on costs and profitability would improve management strategies and encourage more lenders to make more financing available.  How many investors are financing their projects with second mortgages and personal funds when OPM should he available?

It’s time America awoke to the reality that SFRs are critical players in today’s housing picture.  They are solving two problems simultaneously.  They soak up vacant foreclosed properties, reviving home values and revitalizing communities.  At the same time, they provide rental housing in markets where vacancy rates are shrinking.  Without them, rents would be rising even faster than they already are.

About Author

Steve Cook is the editor of Real Estate Economy Watch and writes for a several leading outlets in addition to BiggerPockets, including Equifax and Total Mortgage. He also provides communications consulting services to leading real estate companies. Previously he was vice president of public affairs for the National Association of Realtors.


  1. Excellent observations. However, this died-in-the-wool liberal really hopes the government doesn’t get involved in the SFR business. Also, Fannie Mae has a 15-day rule on their for sale listing that only a owner-occupant can purchase. While in theory this may seem to be a good idea, however, a large percentage of these properties are in really bad shape and the price points lend them to First-Time buyers, and as you know these buyers for the most part want move-in condition homes. If they pool these homes into large pools of 100+ homes only institutional investors will be able to purchase and then they’ll just jack up the price and sell them individually. I think most folks on this site wouldn’t be able to purchase and flip or rent anymore.

    • As someone who also has been accused of liberal leanigs, I completely aagree with you. I think that the folks at FHFA and the GSEs were a bit surporised to discover the scope of single family rentals today, in part hecause of the point I was trying to make–they haven’t been on the radar of the research services as a distinct category.

  2. Excellent article! I have been buying REO’s, fixing them up and renting them out for many years. Our government doesn’t look at individuals only insitutions that can buy in bulk. If one does their homework, they can retire pretty good with lots of equity and positive cash flow as I. The more people/investors learn about REO’s, the fewer they’ll be. Keep up up with your aritcles, their very interesting.

  3. Great read! As a moderately proficient google-searcher who has a rapidly budding interest in the state of rental properties in our country, I have been disappointed by the lack of information. I particularly liked the bit about the private equity funds. Good job.

  4. It’ll be very interesting as some VERY smart money (private equity and hedge funds) begins applying their quantitative and business acumen to purchasing and renting single family residences. This has been the domain of the small-time investor heretofore. It’s clear that a group of large national companies like Waypoint, backed by pvt equity and hedge funds, assuming a substantial role in purchasing the shadow inventory of foreclosures.

    The shear physicality of real estate makes these large scale national efforts a great challenge, however. Every house has to be individually inspected to determine its condition, in order to formulate a correct purchase price. And local market knowledge is also key to determining rental attractiveness and market rent. Of course, they’re relying on the law of large numbers as they buy multi-million dollar blocks of homes.

    • David:

      Good point.

      In the past two weeks another major player has entered the resdiential real estate investment space. Carrington Mortgage Holdings, a mortgage services firm inLA, announced it is raising half a billion in private equity funds to buy investments. It’s recent hires include Steve Ozonian, a seasoned real estate pro whose resume includes president of and Rick Sharga, former spokesman for RealtyTrac.

  5. I’m an investment real estate agent and property manager, and I encourage people to invest in single family homes. They are a lot easier to find good quality tenants for. People call me all the time that just want to live in a single family and not a building. I’m happy when I get a sfh to manage because I can pick and choose from a better pool of tenants.

    They are also much easier to manage. You don’t have to deal with as much tenant drama as a duplex or a small building “Her boyfriend parked in my parking space!” “The neighbors upstairs play loud music!” and that sort of thing. You can make the yard care, snow removal and pest care the tenant’s responsibility.

    When the investor wants to sell, there’s many more people who will buy a SFH vs a multi – you can sell to owner occupants. It’s usually only investors who buy multi family and they are looking for a bargain.

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