[REN #908] Real Estate: Wall Street’s Single-Family Home Landlords Bet on Suburban Rental Demand

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Real Estate: Wall Street's Single-Family Home Landlords Bet on Suburban Rental Demand, Real Estate News for Investors Podcast Episode #908

Some of the nation’s biggest landlords are betting on a surge in demand for single-family rentals in the suburbs. JPMorgan Asset Management and American Homes 4 Rent announced a joint venture to build 2,500 new single-family rentals in western and southwestern high-growth markets. They say the deal will capitalize on a post-pandemic desire to move away from apartments in crowded cities. It will also help address a lack of existing home inventory.

This story is all about the need for more single-family rentals. At Real Wealth, we’ve been helping regular people build wealth and monthly cash flow by investing in affordable single-family rentals nationwide, but at a much smaller scale than the big institutional funds that started after the foreclosure crisis. Many of our members have a goal of owning 10 rental properties, because that’s the number of conventional loans they are allowed to get through Fannie Mae and Freddie Mac.

Some married couples have 10 properties each, if they are able to qualify for the loans separately, and many have traded expensive properties in California for dozens of properties in more affordable but growing regions of the country. One of our members has over 100 rental properties nationwide, and while that sounds like a lot to manage, American Homes 4 Rent has almost 53,000 rental properties in 22 states.

The Start of American Homes 4 Rent

American Homes 4 Rent got its start back in 2011, with the purchase of a few existing homes in the Las Vegas area. The foreclosure crisis provided plenty of inventory back then. It also provided plenty of newly minted tenants, who lost their homes but wanted the same kind of lifestyle.

Today, American Homes is anticipating a new surge in demand for single-family rentals. And, due to a lack of foreclosures and existing home inventory, the company hopes to meet this demand with homes that are built to rent.

JPMorgan’s Health of Real Estate Americas, Mike Kelly, expects much of this demand to come from millennials. In a press release, he called it a “move towards more spread-out living… in the wake of the COVID-19 pandemic.” He also expects, “strong occupancy and rental growth rates across all properties.” (1)

Construction Begins Outside of Las Vegas

The first phase of this construction project has already begun. It involves the building of 34 homes outside of Las Vegas, near where the company began. A dozen homes will have three bedrooms. Another 22 will have four bedrooms to accommodate bigger families. The company expects to have them finished and rented soon. The construction plan expands from there to other suburban markets in the West/Southwest area.

That’s certainly a vote of confidence for single-family rentals and what could be a shift in demand from apartment rentals in high-density areas to homes with yards outside city limits. With more people working remotely, it will also be easy for many people to make the move.

Wall Street See Surge in SFR Demand

Wall Street investors are also seeing strength in the single-family market. Shares of Invitation Homes, which is the nation’s largest landlord, and American Homes 4 Rent both dropped when investors were worried about rent defaults. But that never happened.

According to The Real Deal, Invitation Homes reported better-than-average rent collection and record-high occupancy levels for May. (2) American Homes said it isn’t down much from pre-pandemic levels for rent collection and occupancy.

The Wall Street Journal quoted an analyst from Raymond James as saying, “Investors will be able to breathe a deep sigh of relief. Residential rent collection results… have been far more resilient than initially feared, proving to be a steady shop in a sea of turmoil.” (3)

There’s one interesting detail about “why” Invitation Homes is experiencing above normal rent collection and record-high occupancy rates. The company attributes that to typical rental households where two people are employed and earn a combined $110,000.

It’s unclear how many ready-to-move tenants will decide to buy homes. With millions of people out of work, and tighter lending standards, many of those wanting to move won’t have the money to buy.

To put things into perspective, a very small minority of single-family rentals are owned by corporate landlords. According to Inman News, they own about 2% of the nation’s 18 million single-family rentals. (4) At the other end of the spectrum are the mom-and-pop investors with less than 10 properties. They account for about 90% of single-family rentals.

If you’d like to learn more about the mom-and-pop side of the single-family rental business join RealWealth it’s free to join and access our research and help in finding the right investment for your financial needs.

Links:

(1) JP Morgan Development

(2) The Real Deal Article

(3) Wall Street Journal Article

(4) Inman Article

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