The recent initial public offering by real estate investment trust American Homes 4 Rent, which captured $706 million, raises more questions than answers about the long-term viability of the single-family rental home market.
Even the Federal Housing Finance Agency—whose Real Estate Owned Pilot Initiative, launched two years ago, has transferred 1,763 REO properties to new owners—seems ambivalent about future demand.
There are about 14 million single-family rental homes in the U.S., according to real estate consultant John Burns. Some analysts say there’s about $15 billion in institutional capital in place in this sector. But the single-family rental market remains highly fragmented: Investor-financed companies control only between 120,000 and 150,000 of the total number of homes available.
Technology Drives Property Management
Much has been written in recent years about the shift towards renting rather than owning, especially among younger, more mobile Americans. That’s gotten some homebuilders thinking about including rentals in their product mixes.
Marketplace is currently renting about 1,500 houses in 20 states, primarily in Michigan, Ohio, Illinois, and Georgia. It recently expanded into Minneapolis and St. Louis. And its occupancy rates—a sore spot for some providers—are in the high 90 percent range.
However, Marketplace also has $400,000 in judgments against tenants that Kalis says it has been unable to collect. And in markets like Atlanta, where “a lot of people are converting homes to rentals,” Kalis says Marketplace struggles to fill its rental properties. (In all its markets, the company’s fill rate averages about 40 days after Marketplace starts managing the property.)
He notes that Illinois is a judicial state where the foreclosure cycle takes, on average, 500 days, during which a house sits exposed to the elements without heat, electricity, or maintenance.
Mobile, updatable technology is at the core of property management for American Residential, with 4,000 rental units in 12 states; and Beazer Pre-Owned Rental Homes, with 1,200 single-family rentals in four states. Hawkes notes that her company brought that management in-house after discovering, to its disappointment, that using third-party property management providers had “quality and cost issues.” She adds that managing single-family rentals requires a “tight” rent collection system, a regional and local presence, and “a well-vetted and trained” network of suppliers.
Hawkes sees plenty of growth opportunity for well-capitalized landlords that can bring professional management to the rental experience. She is also buoyed by the fact that the supply of single-family rental homes in the U.S. is still “widely outpacing” the investment capital that’s come into this market. American Residential’s “sweet spot” financially, she says, is in rental houses 1,500 to 2,100 square feet in size that can command monthly rents of between $900 and $1,200.
Workman says single-family rental opportunities continue to flourish in Chicagoland, too. “We have a significant amount of inventory in front of us.” In that market, Mack competes with Waypoint, American Homes 4 Rent, and Blackstone Group, whose 32,000 rental properties nationwide make it the biggest player in this sector. Each competitor has staked out a different area of Chicago, with Mack targeting the market’s southern suburbs where it fetches rents of between $1,350 and $1,700 per month. “We strive to create the highest-quality home in the market because that’s what the high-quality tenant expects,” says Workman.
Source: Housing Finance