Institutional investors continue to buy single-family rental homes.
“We think this is a great business,” says Jonathan Olsen, managing director and head of capital markets for Invitation Homes, an owner and investor in rental houses, founded by Blackstone Group. “We are still actively buying today.”
Home prices have risen sharply in many parts of the country, and bargains are hard to find. However, the largest owners and managers of single-family rental homes continue to improve their property management in markets where they own properties. They also continue to make strategic acquisitions to fill out their portfolios.
In February, American Homes 4 Rent, a single-family rental REIT, closed its deal to merge with American Residential Properties Inc. The deal added 7,246 leased properties to the portfolio of American Homes 4 Rent, growing its portfolio to 44,455 leased properties at the end of the first quarter.
Invitation Homes is still spending about $10 million to $20 million a week to buy single-family houses to offer as rentals. That’s a fraction of the firm’s purchasing volume a few years ago. The firm is currently focusing on the 14 property markets where it owns its portfolio of about 50,000 rental houses, including Seattle, Los Angeles, California’s Inland Empire, South Florida and Atlanta.
Geography is one of the biggest challenges for the owners of single-family rental homes. The job becomes considerably easier if the manager owns a significant number of homes within a relatively short drive of each other.
“Scale is incredibly important to this business,” says Olsen. “That’s because of the logistical element. You have to move around these geographies.”
That's one reason why the largest owners of single-family rental homes continue to concentrate on the markets where they already own properties. If a large owner entered a new property market today, it would probably be through the acquisition of a whole portfolio, which gives the firm an instantaneous critical mass of rental homes to manage.
“To enter a new market we would need to have an opportunity to amass scale right away,” says Olsen. “We would not enter a new market today by buying homes one by one.”
The variety of single-family homes poses another big challenge for managers—each house has a different layout, appliances, heating systems, etc. The challenge of managing all of these unique properties is also getting easier for owners as their portfolios mature.
“Now that we’ve been in business for four [year] we have the benefit of operating history on which to draw,” says Olsen. Owners have also had time to discover what technologies allow managers to communicate between their teams and track information about the properties.
Strong demand for rental homes
The high demand for rental housing is helping owners of single-family rental homes find residents. Only 4.3 percent of single-family houses owned by investors were vacant in the first quarter of 2016, on average, according to data firm RealtyTrac. That’s very similar to the current vacancy rate of 4.0 percent to 5.0 percent in Invitation Home’s portfolio of stabilized rental houses. “It’s been pretty consistent over the last two years,” says Olsen.
Just 3.1 percent of American Homes 4 Rent portfolio of rental houses was not leased at the end of the first quarter, on a “same-home” basis.
“There are a lot macro trends that make it a great time to own rental property,” says Daren Blomquist, vice president with RealtyTrac. “Homeownership rates are very low. Lots of people are renting instead of buying homes.”