Single-Family Rentals Aren’t Just for Millennials

A common narrative is that millennials have been leaving cities and for more space in single-family rentals during the pandemic.

But Michael Carey, senior director at Altus Group, says there’s more to the story.

“It’s not just millennials,” Carey says. “It’s older people too. It’s the younger baby boomers in their late 50’s or early 60’s. A lot of people have decided to cash out now.”

Carey says he knows many people whose kids are grown and who have decided to sell their homes.

“The housing market is on fire right now,” Carey says. “Why not sell? If there is a market correction, what does it mean to home values? Could home values go down? They could. Nobody knows, but why not cash out now?.”

Carey says Altus is seeing single-family, year-over-year rent growth rent growth at 3.6% with demand from different generations. In comparison, multifamily’s annual effective rents were cut by 1.1% at the end of 2020, according to RealPage.

Carrey says both tenant retention and occupancy improved in 2020. Resident retention rose from the mid 60’s to the mid-to-high 70’s, according to Carey. For Class A’s, that number was even higher—pushing into the 80’s.

“That is well above what we see in multifamily,” Carey says.

Carey says occupancy in single-family rentals has increased about 300 basis points to 95%. “I think that’s only going to increase as a trend in 2021,” he says. “And, again, that’s compared to multifamily, which is decreasing overall.”

Carey says Atlanta, Charlotte, Jacksonville, Phoenix, Houston and Orlando—basically markets in the smile states—have all performed well during the pandemic. Chicago has also been a strong performer.

“We think those trends are going to continue in 2021,” Carey says.

Other smaller markets have also been strong. “We’re seeing an increase in interest in secondary markets,” Carey says. “The primary markets are getting really expensive and are seeing a massive inflow of capital.”

Carey points to Oklahoma City, Ogden, Utah, Melbourne, Fla., Columbia, SC, and Huntsville, Ala, (where NASA has operations) as places that his clients see opportunities to make strong returns and scale up quickly. “That [Huntsville] is on investors’ radars now,” Carey says. “There is a solid employment-base, and it has a low entry price point.”

Still, there are some hazards in these under-the-radar locales. “The risk, to me, on that one [Huntsville] is what is your exit strategy,” Carey says.

If nothing else, most institutional investors know that they call sell-off single-family homes one at a time. But if a market is oversupplied, that can be harder.

“We’ve actually seen that [one-off sales] as people are culling through their portfolio and getting rid of properties that they don’t want,” Carey says. “Even if they purchase a portfolio, they sell them one at a time.”

With the lower price points in these under-the-radar markets, there are advantages for investors.

“Although there’s more risk in the secondary markets, the investors are being compensated by higher returns,” Carey says. “When they go into secondary markets early enough, there’s less competition, more supply [to buy]. And they can scale up to a critical mass quicker.”