Single-family rental numbers are increasing, outpacing the market and surpassing investors’ expectations. Even though single-family rental real estate investment trusts (REIT) are one of the youngest REIT sectors, this particular investment option has seen an incredible increase since the housing market crashed. Continue reading the linked report to learn just how exactly this market shift occurred.
- The United States is not building enough new homes, and single family rental REITs are among the direct beneficiaries. Amid the lingering housing shortage, long-term SFR fundamentals remain highly favorable.
- Housing inflation has outpaced the broader inflation rate for more than 80 consecutive months, and 225 of the past 250 months dating back to the mid-1990s.
- Structural impediments to new development continue to limit supply growth. Demand growth has been more robust than expected given the reacceleration in economic growth in recent quarters.
- 2Q18 earnings, however, were mixed. In line with apartment fundamentals, rent growth showed signs of reacceleration. Higher-than-expected expense growth, however, unsettled investors as “one-off” items are becoming far too common.
- Small-cap SFR REIT Front Yard Residential is making its presence known. Through the acquisition of the 3,200-home HavenBrook portfolio, the company became the fifth largest owner of single-family rentals.
REIT Rankings: Single-Family Rentals
In our REIT Rankings series, we introduce and update readers on one of the fifteen real estate sectors. We rank REITs within the sectors based on both common and unique valuation metrics, presenting investors with numerous options that fit their own investing style and risk/return objectives. We update these rankings every quarter with new developments for existing readers.
Single Family Rental Sector Overview
Single Family Rental REITs comprise 2% of the REIT ETFs (VNQ and IYR). Within the Hoya Capital Single Family Rental Index, we track the four SFR REITs which account for roughly $20 billion in market value: American Homes 4 Rent (AMH), Invitation Homes (INVH), and small-cap REITs Front Yard Residential (RESI) and Reven (RVEN). Not included in our index is Canadian firm Tricon Capital (OTC:TCNGF), which also owns a large portfolio of US SFRs within a diversified residential portfolio, including apartments and homebuilders.
Above we show the size, geographical focus, and quality focus of the four single-family rental REITs we track. These four SFR REITs own roughly 150k single-family homes and currently focus on markets that have experienced the strongest economic growth during this recovery. Many of these markets were hit particularly hard by the housing bubble, which allowed institutional investors to buy distressed properties in bulk. SFR REITs own a mix of affordable and middle-tier homes. Relative to apartment REITs, SFRs benefit from lower resident turnover rates but need to expend more per turn.
Contact Jeff Cline at SVN | SFRhub Advisors
SVN | SFRhub Advisors, LLC
2400 E. Arizona Biltmore Circle
Phoenix, AZ 85016