Single-Family Rental Bet Paying Off

IRVINE, CA-The largest of investors in the single-family rental market are holding their portfolios, at least initially, according to a recent white paper by RealtyTrac. The holds are despite some “very tantalizing appreciation that could convince some players to cash out,” the report says.

The single-family rental strategy was a bet—not only on the continued demand for rental housing and the strength of home price appreciation—but also on a long-term path to liquidity for investors, according to the paper. Large firms bought heavily before there was a clear path to liquidity; betting that something would emerge, by public offering REIT, securitization or simply a maturing industry of SFRs where stabilized portfolios could be sold to other players at non-distressed prices.

And so far, the bet appears to be paying off. RealtyTrac reports that public offerings of Silver Bay, American Residential Properties and American Homes 4 Rent, along with the first-ever securitization of rental homes by Invitation Homes (at a very low rate) have demonstrated that public market investors buy into the potential of SFR rentals.

The paper goes on to say that as institutional buyers entered the market in early 2012 in response to the record levels of distressed SFR inventory, they changed the landscape dramatically. The deep values once available in cities they initially targeted have gradually disappeared as investor demand for rental homes combined with fundamental demand stemming from an improving economy and better credit markets. As a result, many markets have generated double-digit home price appreciation. The rise in home prices in most major markets has reduced the pool of homes investors can purchase with the expectation of large price increases.

As GlobeSt.com reported in September, the movement of institutional investors into the single-family rental market has raised the issue of property management for these homes. Experts agree that managing single-family properties is very different from managing their multifamily counterparts, which is where local agents and brokers have created a niche for themselves.

“Many of these large investors have partnered with local property-management companies and real estate agents in the markets where they are purchasing, and they are hoping this will give them the foot soldiers to handle the details of property management,” Daren Blomquist, VP of locally based RealtyTrac, told GlobeSt.com at the time. “Property management is a concern when you have large institutions purchasing big quantities of properties in a diverse set of locations.”

Stay tuned for more from RealtyTrac's buy-to-rent white paper, including what investors are expected to do in 2014.