EXPECT MORE SINGLE-FAMILY RENTAL INVESTORS?

by Tim Herriage

EXPECT MORE SINGLE-FAMILY RENTAL INVESTORS?

by Tim Herriage

by Tim Herriage

There are a number of trends and cross currents that give wise single-family residential rental investing a consistently bright future. What are they and how could they affect your investing?
IS THE COMMERCIAL AND APARTMENT SECTOR OVERHEATED?
The Wall Street Journal (6/22) warns that too many dollars may be chasing Millennial renters in downtown luxury apartments. Builders are finding it harder to find banks to fund construction because of concerns the sector is overbuilt.
Investors already attuned to real estate in commercial and apartments may find investing in single-family rentals no longer the leap of investment faith it once was. Blackstone, Cerberus and Colony American Capital have proved this.
STARTER HOUSES, NON-STARTERS?
Builders face a dilemma. They cannot make money building starter homes and they are finding first time buying Millenials don’t want them.
This is important. Historically this age group is 32% of house buying public. If affordable homes don’t produce margin builders choose to build Move-Ups and Luxury Residences. In select markets, where infill land is available, a few builders have elected build-to-rent, but this is limited so a chicken and egg situation exists. Our “Quotes of the week” affirm this.
Part of the dilemma is Millenials expect more than a starter home but are not yet in a position to pay for more. Builders cannot monetize delayed demand, especially public companies, so they build where the margins are.
Fannie and Freddie are struggling to find alternative credit scoring models to create more mortgage eligible buyers but with limited home inventory that suit this demographic, this is simply “fiddling around the edges.”
Any delay in millennial house purchase decisions, maintains a sustained SFR tenant demand. If you are a family and you cannot buy the house of your dreams, the next best thing is renting it near jobs and schools.
DEMANDING DEMOGRAPHICS
Two numbers drive housing demand, rental or purchase; people and incomes. Nationally weak job growth remains and is primarily in middle-income and service jobs. There are regional markets in Texas and other Southern markets that are doing better than this national trend.
Tim Herriage CEO of 2020 REI Companies said in DS News, “focus… on economic fundamentals when it comes to deciding where to invest. I have always focused on jobs and schools as the main driver for my investment decisions,” he said. “Chasing high rents, without understanding the important underlying fundamentals: leads to poor investment decisions.”
High rents tend to be cyclical and in high priced markets that tend to punish investors who try to time purchases and sales. Job creation and meaningful school quality require long lead-time economic and infrastructure investments, thus are found in sustainable and less trend driven markets.
Wise SFR rental investment in these markets benefit from three factors; sustained demand by well paid employees who aspire to rent properties they would be happy to buy if the opportunity presented itself. Property appreciation follows.
In this job/school/lifestyle environment a wisely bought rental investment offers a blended return of both rental income and sound house price appreciation, versus just pursuing higher rent.
So if commercial real estate and apartment investing cannot generate the returns you desire as an investor, are single family rentals the next real estate investment class? See how our group can help!  Comment below or click here.

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