The single-family rental (SFR) market has existed for some time but after the recession, large institutional players began buying single-family homes as investments. At the time, operators rented out properties to residents who could no longer afford to own homes, but still preferred to live in a home rather than a multi-family unit. Now, there are over 13 million single family rental units in the United States and consumers continue to express their preference for this rental option vs. apartment buildings or multi-family units.
Single-family rentals are typically larger than multi-family apartments and are typically located in lower-density areas (less urban) with lower crime and better schooling options.
Over the past five years, the single family rental has become its own institutional asset class with over $50B invested by the large players (amounting to over 250,000 homes) and over $13B in securitizations. And the market continues to grow and benefit from scale. With larger institutions leading the way, this has created the opportunity for smaller and individual investors to enter the space and take advantage of the attractiveness of this investment class: strong cash flow generation, appreciation, low volatility, and the opportunity to maximize returns through utilizing leverage.
Today, 1 in 10 homes in the United States are single-family rentals (that equates to over 13mm single family rental homes) and single-family rentals account for nearly 40% of all rental properties in the country. There are now nearly as many single family rental homes as there are small and medium size apartment buildings, which is a function of the fact that most people continue to live in homes rather than apartments.
There are demographic and psychographic shifts taking place in the United States that we expect to continue to fuel the growth of the SFR market in the coming years. For starters, millennials and baby boomers are of the mindset that they prefer to have the flexibility of renting vs. owning. This is a general preference, but is also a function of ongoing tight credit conditions and higher cost of living, hampering consumer’s ability to save for a home down payment.
In a future post we will discuss the primary market factors that are contributing to the expected increase in demand for single-family rentals. We hope that this article provided you with a quick overview of why SFR properties are an attractive investment asset, and our goal is to expand your understanding of the market to help you make informed investing decisions.