While attending and participating on one of the many panels at the Information Management Network's 3rd Annual Single Family Rental Investment Forum held April 20 – 22 in Miami, it became clear that there is still enthusiasm by investors of many types and sizes toward the single-family rental market.
Several hundred attendees descended on the Loews Miami Beach Hotel to network, exchange ideas, seek new business opportunities, and listen to numerous industry experts discuss topics such as macroeconomics, market conditions and trends, mergers and acquisitions, growth potential in this space, investor financing, flipping vs. holding, securitization, the critical importance of effective, accurate due diligence, and much more.
Although there was an abundance of enthusiasm expressed by many of the smaller and mid-sized investors and various vendors who attended this year’s forum, it did seem to this observer that the recent downward pressure on yields experienced by the much larger institutional investors has been somewhat tempered. This is to be expected following the phenomenally rapid interest and growth found within this asset class over the past three years.
Since the housing crash of 2006, several Wall Street-backed firms, such as Blackstone Group, institutionalized the so-called “mom and pop” business of buying and then renting single-family homes. Additionally, real estate investment trusts, hedge funds and private-equity firms have spent well over $20 billion purchasing as many as 150,000 houses since 2012.
But, as home prices have gone up in many markets, especially those markets where the institutional investors focused their efforts, invariably investment returns have come down. This has created an environment where the larger investment firms are pulling back, while the smaller investors who aren’t concerned about shareholders’ returns are increasing their participation.
I was honored to serve on a panel that focused on acquisition due diligence, which is critical in this space, as accurate, timely up-front valuation, property and market conditions of individual and pools of properties can make or break profitability in this asset class.
Also serving on this panel were moderator Randy Hagedorn, director of acquisitions for Broadtree Home Rentals, Meghan Jones-Rolla, senior vice president-assistant general counsel for Servicelink, Larry Leon, president of L2 Real Estate Services, Carlos Gonzales, owner of Real Estate Life Network, and Shane Sauer, chief operating officer and co-founder of RentFax.
With shrinking yields becoming an issue of concern to institutional and other larger investors, technology companies attending the IMN forum were among the most visited firms with company booths in the expo hall, as one might expect. The more accurate and robust data investors accumulates for use in due diligence efforts, the more successful they will be in analyzing which properties will yield the highest net return on their investments. With respect to larger pools of properties, bidding is so competitive today that “getting it right” relative to property valuations is critical to being not only the successful bidder, but a profitable one.
However, in addition to possessing state-of-the-art technology, the panelists were unanimous in agreement that having local “boots on the ground” adds significantly to the overall due diligence process. For example, having relationships with local real estate professionals who are experts on market conditions, pricing, rents, and issues that can impact profitability, whether properties are purchased to rent or flip, pay dividends in deciding which properties to purchase and which to avoid.
With interest still quite high regarding the single-family rental market, which continues to make up more than 10% of all rental properties in America, just as it has for several decades following World War II, we can expect IMN to continue to offer educational opportunities for investors and the plethora of vendors serving this market that will increase their chances for success.