Single-family rental investment still strong among smaller investors
Cash sales down because institutionals exiting
Last weekRealtyTrac reported that the share of home sales to institutional investors and all-cash buyers dropped to four-year lows in 2014 despite a quarterly increase in the fourth quarter.
A total of 105,278 single family homes were sold to institutional investors — entities that purchase at least 10 properties in a calendar year — in 2014, 4.2% of all sales and down 31% from the 153,450 institutional investor purchases in 2013 to a four-year low. Meanwhile overall sales of single family homes decreased 2% between 2013 and 2014.
But Don Ganguly, CEO and founder of HomeUnion, says that’s not really surprising, given the investment strategies that major institutional investors had been pursuing over the past few years depended on a large supply of severely discounted properties.
Now that the “bargains” are gone, he says, so too are the bargain hunters.
While new purchases were down in 2014, bond issuances, backed by SFR properties, soared: 10 deals, valued at $7.5 billion came to market last year, according to KBW.
“Finding an affordable home that provides a steady rental income is not luck, it is data and research and individual investors now have access to that type of information,” Ganguly said. “In the past few years institutions have been bottom feeding, seeking distressed properties that they could flip when prices turn, that’s not an alternative for the majority of individual investors as they don’t have the time to do all the legwork required. However there is a great opportunity in SFRs for those seeking a long-term investment options to generate monthly cash flow.”
SFR investing has always been the purview of smaller, more nimble investors.While institutional buyers acquired somewhere between 200,000 and 400,000 properties in the last four years, investing north of $67 billion; that accounted for less than 0.1% of all US residential properties.
The rest of the SFR market, approximately 14 million homes, valued at more than $2.8 trillion is owned by non-institutional investors who see the value of these cash-flowing assets.
“More than 99% of the $2.8 trillion SFR market is comprised of small investors and those small investors are being catered to by companies like HomeUnion because we provide individual investors with rich analytics and local data for better decision making and then we manage the properties once they buy them,” Ganguly said . “Investors are using GSE loans for leverage, finding markets that offer the best cap rates and like the institutions, bringing in professional property managers.
“What is changing is the growing awareness of SFR as an investment class. Individuals increasingly understand how to calculate cap rates and investment returns,” he said. “With more individual investors acquiring remote SFR properties, they are becoming an important piece of a well-balanced investment portfolio.”