Institutionalization of Single-Family Homes
Like it or not, Single Family Rental (SFR) landscape is changing as institutions are moving into this space. Over the last few decades, Institutions/pensions/endowments have been moving away from publicly traded stocks (traditional stocks) and more into non-publicly traded assets; be it Private Equity, commodities (mining/oil/gas), Private Debt, and Real Estate. Go back a few decades and multi-family was predominately non-institutionally owned, yet today it is commonplace. Some of that is the search for return, stable cash flow, and hard assets, but don’t discount the growth in technology that has assisted in the management.
SFR’s are still primarily a mom-and-pop asset, but that is changing as institutions look for more opportunities and the development of technology. No longer does the landlord/manager have to meet a prospective tenant, but through electronic locks and webcams they can schedule an appointment, the prospect shows up, is verified through customer support desk, allowed access to the home and monitored while viewing it. Maintenance is also automated through online portals and automated dispatch.
In some instances, whole neighborhoods are “Build To Rent”; the institution purchases a block of land and develops 20 to 200 SFRs; think of them as Horizontal Apartments. I recently visited a Build-To-Rent community in NC where the homes are replicas of each other; same paint, appliances, flooring, back yard fencing, and technology (all the way down to moisture sensors on the water heater). The walls are not-textured (easier to repair than textured), Luxury Vinal Plank throughout the house, and carpet only in the bedrooms. Their primary renter is the single female with a dog, as she feels a lot safter taking the dog into the back yard to relief its self than into a more public location. Sure, the cost of rent is a bit higher than an apartment, but there is demand for that small house without common walls between neighbors.
Build To Rent has primarily been driven by the lack of housing inventory as that is generally their first choice in building a portfolio, however more and more investment fund providers are doing only Build To Rent as it fast development and generally the most economical per SqFt.
Not all institutions are on board with the SFR concept because it is relatively new and are taking a wait-and-see approach; waiting for a full cycle to see how the numbers pencil out. A house certainly has more maintenance, but how will these blocks of homes sell in 10 years.
As for our investors, Legacy Wealth has been tip-toeing into this asset class through institutional partnerships; where accredited clients are able to get in for as little as $50K and expect to hold the investment for 4 to 7 years. Additionally in a similar manner, we have teamed up with institutional Manufactured Housing Community programs, whereby investors become partners in diversified parks throughout the US. These have traditionally been mom-and-pop owned, and institutions are moving into that area as well.
In both cases financing, insurance, and maintenance costs are lower though size and volume (bulk purchase of supplies and a dedicated service crew).
This transition has both negative and positive attributes; the negative is institutions are competing against individuals in purchasing homes with all cash offers. The positive is they are building homes to satisfy housing needs as well as providing SFRs to those that otherwise would be forced into an apartment.
Source: John Burns Real Estate Consulting