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The Single Family Rental Market – A New Asset Class

Post on: February 11, 2015 | Daniel Sultan | 2

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Guest author Daniel Sultan is co-founder of Property Pool, a valued WealthForge partner.

During the last 2 years we’ve seen a shift in the capital market industry, especially in the way people invest in private deals. Thanks to the JOBS Act, accredited investors can now find more deals online. In the past few years, real estate investments have outpaced almost every other sector in terms of capital contributed to private projects.

Within the real estate industry, the Single Family Rental space (SFR) is one of the fastest growing sectors. According to Housing Wire in 2014, four of the five top growing companies in the real estate industry were all in the Single Family Rental sector.

After the housing market crash a few years ago, empty houses flooded neighborhoods that were once full of privately owned, single-family homes. Since then, investors have been capturing the potential - hidden in this market disaster - by purchasing these low-cost homes and refurbishing them for renting.

In the last couple of years, big institutional players have entered the market trying to benefit from this growing space. There are many key macroeconomic factors that make this business appealing.

  • According to the census bureau, the homeownership rate keeps decreasing from its 2005 peak of 69% and to around 64% currently. Every 1% drop in the homeownership rate represents an approximate increase of 750,000 new renters.
  • Census data shows that median asking rents have been increasing steadily over the last 20 years.
  • The last National Housing survey by Fannie Mae showed there is a growing preference by younger demographics towards renting a home instead buying.
  • Institutional players have invested more than $25 billion in the SFR industry, buying more than 250,000 thousand homes. They still represent less than 2% of the total market of 14,000,000 rental homes.

Right after the crisis, analysts and investors debated whether this was a trade-off, or if it could become a new asset class. It is safe to assume that with all the institutional money coming into the industry, the SFR space is a new asset class on its own.

Thought leaders believe that with the new institutional focus, the SFR industry will follow the path of consolidation much like the multi-family and self-storage industries did in the past.

A new way for investors to participate in the SFR space

Previously, smaller investors did not have access to the type of SFR deals that the institutional players had. Online private placements is emerging as a path for smaller investors to pool their money together and achieve the same results as institutional players with added benefits of geographical and risk diversification and professional management.

The SFR space is going to keep growing in the years to come and online private placements will be the avenue for smaller investors to participate efficiently in the space.

 

Securities offered through WealthForge, LLC. Member FINRA/SIPC. This post is an industry update from WealthForge. The message does not constitute a research report or recommendation and does not take into account the specific investment objectives, financial situation or particular needs of the recipient. This message is not an offer to sell or the solicitation of an offer to buy any security or interest in any fund, which only can be made through a private placement memorandum that contains important information about the risks, fees and expenses of a fund.

Disclaimer: WealthForge provides this information to our clients and other friends for educational purposes only. It should not be construed or relied upon as legal advice.

Disclaimer: Altigo provides this information for educational purposes only. It should not be construed or relied upon as legal or tax advice.

About author

Daniel Sultan

Daniel is the co-founder of Property Pool, a real estate crowdfunding platform focusing on the single family rental space.
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