One of the hottest specialty markets in home construction is benefiting from the boom in single family rentals that began as a way for entrepreneurs to provide from the flood of foreclosures that has reached 4 million properties since 2007.
However, instead of buying foreclosures and renovating, some home builders are designed and building homes from scratch to be rented out rather than sold, with the builder operating as property manager and well as retaining ownership.
Despite some recent ups and downs, the share of single-family homes built for rent has doubled. According to data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, the market share of single-family homes built for rent, as measured on a one-year moving average, stands at 5.1 percent for the third quarter of 2016. This is only slightly lower than the recent peak of 5.35 percent set at the beginning of 2016, and is considerably higher than the 20-year average of 2.7 percent.
With housing starts currently at 861,000 a year, the number of new built-for-rental properties is about 43,911 annually at the current market share. Only 27,000 homes started over the past year, according to the National Association of Home Builders
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 27 percent according to the 2015 American Community Survey. As single-family homes age, they are more likely to transition from the owner-occupied to the rental housing stock.
With demand for single-family rentals on the rise, investors have turned their attention to buying foreclosed residential lots, building rental homes to sell to other investors, renting the homes and providing property management services.
One option that turns renters into owners are rent-to-own programs that reduce carrying costs on unsold inventory and helps convert more homes to sales.
Some builders have a separate division to handle the rental side of their business, while others prefer to work with customers on a case-by-case basis.
Renters sign a use-and-occupancy agreement that allows them to live in the home until they can refinance it and take the builder out of the equation. In most cases, customers are able to purchase their home after renting for one year. Occasionally it takes two years. Customers can also elect to sign a conventional lease, but they always have the option to buy.
To learn more about the build to rent market for new construction, contact a member of the 9 Core Realty team!