The institutionalization of Single-Family Rentals
Single-Family Rentals (SFRs) have quickly become a desirable addition to a well-rounded investment portfolio
Large, institutional investors are continually “chasing yield”, or returns on the investments. Historically, investors looked at core properties – office, retail, industrial, and multifamily – for their investments. As more money has flowed into these property types, the purchase prices were bid up and their returns decreased.
Reduced returns for core assets have led to investors seeking higher returns in alternative (non-core) assets such as single-family rentals. Residential is considered a relatively safe investment because people will always need a place to live. Over the last 10 years, the increased prices for apartments has led residential investors to higher-return SFRs.
In the last two years, institutional investors have purchased almost 100,000 homes and this amount is expected to increase in the near term.
Read the Evolution of Valuing Single-Family Rental Homes to explore the growing institutionalization of the SFR space and the appropriate approach using a discounted cash flow.
SFR was a growth strategy for investors looking to buy low-priced properties after the financial crisis. Today, the SFR market has matured into a legitimate asset class because of predictable cash flows, stable returns, and solid rent growth. These characteristics are attractive to a wide range of investors and lenders, and SFRs have quickly become a desirable addition to a well-rounded investment portfolio.