Jump in Single-Family Built-for-Rent Construction

New construction rental homes

The number of single-family homes built-for-rent has posted solid gains over the last year. However, the built-for-rent market is a small portion of the total single-family development, so care must be taken when identifying trends.

According to data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design and NAHB analysis, the market share of single-family homes built-for-rent, as measured on a one-year moving average, stood at 4.5% of total starts as of the second quarter of 2016. Given the small size of the market segment, the quarter-to-quarter movements are, however, not typically statistically significant. The current market share remains higher than the historical average of 2.8% but is down from the 5.8% reading registered at the start of 2013.

For the last four quarters, single-family built-for-rent starts totaled 34,000 homes. This marks positive growth over the 26,000 estimated for the four quarters prior. This class of single-family construction excludes homes that are sold to another party for rental purposes. It only includes homes built and held for rental purposes.

With the onset of the Great Recession and the ongoing declines in the homeownership rate, the share of built-for-rent homes rose. Despite the current elevated market concentration, the total number of single-family starts built-for-rent remains low in terms of the total building market. However, after falling during 2013, the market share has grown over the past year.

Of course, the built-for-rent share of single-family homes is considerably smaller than the single-family home portion of the rental housing stock, which is 35% according to the 2013 American Community Survey. As homes age, they are more likely to be rented. Thus, the primary source of single-family rental homes is not construction but the existing housing stock.

To learn more about build-to-rent homes and getting involved in this lucrative segment of real estate investing, contact 9 Core Realty today!

 

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New Ways to Profit From Renting Out Single-Family Homes

Single family new home rentals

Two-and-a-half years into the U.S. housing recovery, the real-estate industry is rolling out new ways for individuals to invest in the property market.

Brokers, property managers and others are helping buyers purchase houses in distant cities and manage them as rentals for a fee. Publicly traded trusts that collect rental income are selling shares to investors. And crowdfunding startups are matching buyers with willing lenders.

The latest pitches generally aim to eliminate the day-to-day headaches of being a landlord, and the potential payoff can make the concept worth considering. Investors can buy in for the price of a single-family home or a single share of stock.

But the plunge in U.S. home prices in the financial crisis should be a fresh reminder that bets on housing can sour in a hurry.

The latest deals often don’t depend on home values going up, which sets them apart from the house-flipping strategies that cost many home buyers dearly when the market collapsed. Yet investors could still face losses if, for example, the economy weakens and renters can’t keep up with their payments.

Those who buy a rental property and then need their money back down the road could also get burned. Unlike stocks, bonds and mutual funds that can be sold quickly, it can take months to unload a house even in a strong market. And if prices decline, investors may lose a chunk of principal for good.

Don’t go overboard. Investors should maintain a diversified portfolio that also includes stocks, bonds, land and cash. Single-family homes shouldn’t exceed 5% of their investments, not including their primary residence.

For the moment, the supply of rental homes and the demand from renters are high. Some 14.9 million single-family homes were occupied by renters in 2015, up 31% since 2006, before the U.S. housing market collapsed, according to data released by the U.S. Census Bureau.

To learn more about investing in single family rentals, new construction rentals and land investment contact a member of the 9 Core Realty Team!

Construction of Rentals Is Taking Off

New Rental Construction

After the housing market collapse, there is a construction boom — in apartments and single family rentals.

Over the last 12 months, the Census Bureau reported, builders have broken ground for buildings containing 332,000 apartments. That is more than during any comparable period since 1989. The figures include apartment buildings with at least five units.

By contrast, building of single-family homes has partly recovered, but only slowly, and the same is true for buildings containing two to four units.

The number of single-family homes started over the most recent 12 months was more than 60 percent below the level of 2005, when the housing boom was at its peak. But the number of apartment starts is now 7 percent higher than it was in 2005.

Construction of new apartment units has reached the highest level seen in a quarter-century, and the rental vacancy rate has fallen to the lowest level in more than 15 years. But construction of single-family homes, and of buildings with two to four units, is recovering slowly.

This is still a country where most people live in single-family homes. But over the 12 months through July, apartment buildings accounted for 34 percent of all new housing starts, the highest share since 1974. In 2005, when the housing market was booming, the share for apartments fell below 15 percent.

Now, with mortgages harder to get for many people with flaws in their credit history, and with others unwilling to buy after suffering losses when home prices collapsed in 2009, rentals seem to be in high demand. The Census Bureau says that the vacancy rate for rentals fell to 7.5 percent in the second quarter. That was the lowest vacancy rate since 1997.

During the most recent 12 months, construction began on 629,000 single-family homes. That is 48 percent more than the 426,000 such starts recorded during the worst period of the housing crisis, but it is still very low by historical standards. Since 1959, when housing start figures began to be collected, the only time starts fell that low was in 1982, during a brutal recession that was accompanied by high interest rates that made mortgages very expensive.

A month ago, after a disappointing June report of housing starts, some economists warned that the revival in home building was stalling. But in the July report, the government raised its June estimate and said the July figure was up as well. In addition, a survey of home builders showed they thought business was getting better, and the National Association of Realtors reported a gain in sales of existing homes.

Sales of new single-family homes peaked last summer, on a seasonally adjusted basis, and have since slipped a bit, adding to the worries that the housing market might be slipping.

To learn more about the build to rent market in your area, contact a member of the 9 Core Realty team!

Developers Enter the World of Single Family Rentals Throughout U.S.

single family rental builders

Build to rent investors are taking advantage of a white-hot rental market due to an increase in renters and constrained homebuying because mortgages are harder to get.  Homebuilders and market experts say also that while families tend to prefer houses, they either can’t come up with the down payment or prefer the flexibility of renting.

Meanwhile, the number of single-family rentals has been soaring. Census figures show that nationwide, nearly 3.9 million additional houses became rentals from 2005-2015. But most of those rental houses are in existing neighborhoods, owned by mom and pop landlords or by investment funds that snatched up foreclosures to create huge portfolios of rental houses.

A lot of people want to buy a single-family home, but for whatever reason, they’re credit challenged. There’s a great deal of demand! Some homebuilders are stepping up to serve that market, with the number of U.S. houses built as rentals doubling from 2007 to 2012, numbers from the National Association of Home Builders show.

Rental house starts represented 3 percent to 6 percent of all single-family starts in the nation since 2007, up from 2 percent to 3 percent in the prior 17 years, the NAHB reported.

But housing consultants argue that homebuilders are missing out on 10 percent of the housing demand, allowing existing homes to serve tenants who prefer rental houses to apartments. Some don’t qualify for a mortgage, he said. Others want the flexibility of being able to move or would rather spend what they earn rather than save for a down payment.

Clearly there is a subset of renters who will pay a premium to rent new. If it works for apartment developers, why has there not been much attempt to build single-family homes for rent? Those days are now ending.

Homebuilders note that new rental house subdivisions have advantages over rental house portfolios amassed by investment funds. While those landlords have hundreds of homes spread throughout a metro area, the builders can cluster their rentals together, making them easier to rent out, maintain and repair. Portfolio landlords will have to pay high bills for each stopped-up toilet, since a plumber has to drive across town to make repairs. You don’t have the efficiency of having the maintenance person on-site and you have newer construction, so there’s less deferred maintenance.

Building new rental houses can’t be done everywhere, builders said. Land and construction costs need to be in line with rents in communities with strong employment.

To learn more about the build to rent market for investors in SWFL contact a member of the 9 Core Realty team today!

Investors Snap Up Finished Single-Family Homes, Develop Vacant Lots, for a Hot Market

new home rental construction

More single-family homes across the nation are being built for renters, a shift that mirrors a steady decline in homeownership in the years since the housing bust.

Until recently, real-estate investors had focused primarily on scooping up tens of thousands of foreclosed homes, at a sharp discount, and converting them into rental properties. Now that the pool of these properties has declined and prices have risen, these investors are snapping up newly finished single-family homes to be used as rentals, or even developing vacant lots from the ground up.

Last year 5.8% of the 535,000 single-family homes started were being built as rentals, up from 4.8% in 2011 and the highest share since at least 1974, according to an analysis of census data by the National Association of Homebuilders. From 1974 to the home-price peak in 2006, only about 2% of single-family homes were built for rentals.

For investors, the interest in new homes reflects their belief that the rental market will continue to see strong demand and rising rents. While there is little data for the level of single-family home rents, apartment rents have shot up 11.3% since 2009, according to Reis Inc. Overall, about 15 million of the nation’s single-family homes were rentals last year, up from 10.8 million in 2005, according to Zelman & Associates, a research firm.

Meanwhile, foreclosures and other distressed sales accounted for less than 15% of all home sales in June, down from 21% a year earlier and 33% at the peak of the housing bust in early 2009, according to CoreLogic, a data firm.

The new homes-turned-rentals can be found both in new subdivisions or built on lots in long-standing communities.

Building new rental homes undercuts part of the thesis of investing in single-family rental homes. Investors were attracted to this market largely because they could buy houses for less than the “replacement cost” or how much it would cost to build a new home.

But investors say they can still make profits. They point out that new homes typically come with builder warranties and cost less to maintain, at least in the initial years of ownership. Also, the cost of building a new home is relatively low these days if lots were purchased on the cheap.

To learn more about the development of land lots for sale for new construction single family rental homes, contact a member of the 9 Core Team today!