Single-family rentals are a nascent but rapidly growing asset class.
After the Global Financial Crisis, big players aggregated assets and then rolled out IPOs.
“Colony did really well and Blackstone did really well,” Jilliene Helman, CEO of RealtyMogul, an online real estate investing platform with a $2.3 billion portfolio and over 200,000 individual investors.
Initially, those major institutional investors figured out ways to manage single-family rentals. “The reason single-family rentals were not an institutional asset class before was because you could not get economies of scale on the operation,” Helman says. “Now they’ve proven out that they can get economies of scale on the operation.”
These companies solved economies of scale by doing lots of renovations, which reduced the initial need for maintenance.
“They went in and renovated appliances, roofs and other things,” Helman says. “It’s no different than a multifamily apartment complex, where if you invest upfront, you’re going to have less maintenance and fewer visits to homes.”
These efforts were successful, according to Helman. “I think that these companies have validated that they can build teams and get economies of scale in certain markets to make that business model work,” Helman says. “But I like the build-to-rent model much better because you can manage it like an apartment building.”
Now, with another cataclysmic event, COVID-19, showing the strength of single-family rentals, Helman thinks we’re about to enter version 2.0 of the single-family rental expansion.
“We think of managing these the same way as we think of managing a 200-unit apartment building,” Helman says. “If you’re doing a build-to-rent, all of the units are in one community and very close to one another. You don’t have all of the management and operational headaches that you did in version 1.0, which is acquiring single-family assets all over a city or a county.”
Helman is a proponent of a method she calls “one inside, one outside” to manage these properties. “What we mean by that is you’ve got a full-time leasing person and a full-time maintenance person for every 100 units,” Helman says. “That’s going to be a lot fewer people and a lot cheaper than managing 100 single-family homes all over a city.”
To affordably purchase enough land to build new single-family rental communities, Helman says builders are finding land further out of cities. “Now, now we find developers being able to go 20 minutes outside of town,” Helman says.
People are willing to move further out because they have more flexibility around where they can work due to COVID.
“People now are willing to live 20 minutes outside of town because they don’t have to commute in every day,” Helman says. “I think there’s a belief, at least for a lot of businesses, that they’re not going to be requiring employees to be in the office five days a week anymore. Maybe it’s every other day, or maybe it’s every other week.”