Rental homes Single-family rental homes; the National Rental Home Council has estimated institutional ownership at less than 2%. (Photo courtesy of NRHC)

IRVINE, CA—Institutions are stepping up their game again in the single-family rental arena, ATTOM Data Solutions said Thursday. That's the case even as average returns in the sector have reached a nine-year low in 473 US counties.

“After a drop-off in single family purchases by both individual and institutional investors over the past two years, we're starting to see investor acquisition activity pick up again,” says Daren Blomquist, SVP at Attom. Given shifting attitudes toward homeownership that are showing up in stubbornly low homeownership rates and our data showing more than 18 million non-owner occupied single-family homes”—comprising about 25% of the total—“these SFR investors will be an important and likely growing force in the real estate market for years to come.”

While larger-scale investors—those acquiring 10 or more SFR properties at a time—still account for a small share of investment activity, on a percentage basis they've come backstrong from two years of lower volume. Nationwide, 2.7% of all single-family homes that sold in the first seven months of 2016 were purchased by institutional investors, a 29% year-over-year increase. Over the past 10 years, the peak in institutional investor share of SFR purchases nationwide was 8.4% in the first seven months of 2008, according to ATTOM.

Among the 473 counties analyzed for the report, 322 counties, or 68%, posted Y-O-Y increases in share of institutional investor purchases. Among these were Philadelphia County, PA, up 72%; Cuyahoga County, OH, up 45%; Orange County, FL, up 25%; Franklin County, OH, up 28%; and Saint Louis County, MO, up 93%.

When it comes to the SFR space, institutions appear to have Georgia on their minds. Seven of the top 10 counties for institutional market share of SFR acquisitions during the year's first seven months were in the Peach State, led by Richmond County in the Augusta metro area with 13.8%.

“The single family rental operations have been proven in a public market,” says Gary Beasley, CEO and co-founder of Roofstock, an online marketplace for performing, tenant-occupied SFR homes. “These homes can be managed like apartments. When we first got started, we thought we could do that, but in the last year or so investors are really starting to believe it.You've seen a couple of the public companies ramp back up on buying along with other institutional investors who have been on the sidelines who now want to get involved.”

The average annual gross rental yield—i.e. monthly rent, annualized, divided by median home price—among the 473 counties was 8.7% for properties purchased in the first seven months of this year. That's down from an average of 8.8% for the same time period in 2015, and represents the lowest level since 2007, when the average gross rental yield across the 473 counties was 7.3%.

“While average rental returns on properties purchased so far in 2016 are at a nine-year low, these returns are still attractive compared to alternative investing opportunities,” says Blomquist. Moreover, some counties have posted double-digit yields, led by the 24.3% return posted by Clayton County in Georgia–which is also among the top seven for institutional market share.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.

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