Single-family rentals may be one of the few asset classes to see demand growth following the pandemic. According to Jeff Cline of SVN/SFRhub Advisors, demand for single-family portfolios, defined as five or more homes, has skyrocketed in the last month, up 650%.
“Compared to other commercial real estate segments, S&P 500, treasury notes and the stock market, SFR investment is typically more stable and profitable,” Cline, director and principal at the firm, tells GlobeSt.com. “As we’ve seen for decades SFR investment typically grows during economic downturns, we expect this downturn to be no different. We have seen a 650% increase in buyer and seller activity this past month.” SVN/SFRhub Advisors is onboarding 10,000 assets to keep up with demand.
According to Cline, this trend isn’t surprising. The asset class has outperformed other rental product, and has attractive benefits for owners. For example, SFR tenants stay in the property for an average of 8 years and are in higher demand than multifamily units among growing families. “On the consumer side, the major decision components when comparing to a home purchase for tenants are convenience, mobility and affordability,” says Cline. “Culture change has also had a big impact, as renting has become an increasingly more popular choice.”
In the current market disruption, single-family homes have also outperformed multifamily on early rent collections. “The April 2020 reports we have received indicated that SFR rental collections at approximately 5% uncollected are substantially better than multi-family, estimated to be at about 24%,” says Cline, although more recent data shows that multifamily also had about 5% to 10% rent collection loss. “We believe this difference may be due to the typical tenant profile in SFR rentals being made up of families as compared to individuals that may be renting apartments.”
Within the single-family rental market, the build-for-rent assets are the most popular among investors. BFR assets are built specifically for rentals, and can have higher margins than other single-family assets. “BFR is attractive to builders as margins can be higher and sell-out for a subdivision is 75% faster,” adds Cline. For investors, BFR communities have attractive permanent financing available, longer and higher tenant occupancy, less turn cost and little to no capital expenditures for five to 10 years. We have underwritten more than 40,000 BFE investment homes the past two years.”
With soaring job loss, more families will be pushed out of the home buying market and into single-family rentals, creating long-term demand for both SFR and BFR product. “Record high credit card and student debt along with the inability to save for a down payment are the major elements that support renting versus owning,” says Cline.