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Snapshot of SFR Market

The single-family rental industry has been the fastest-growing segment of the housing market since 2006, when NRHC members and other investors saw an opportunity to professionalize the existing market. The industry has grown 30 percent since 2007, compared with 15 percent for multifamily rentals during that same period.

Our members are largely no longer buying homes and are instead focusing on optimizing their business models and using new technologies to improve the renter experience.

Consolidation is also continuing to reshape the industry in exciting ways, as owner-operators of all sizes gain insights about their markets and refine best practices of operating at scale.

Institutional ownership remains a very small part of the overall market – just 200,000 homes, or 0.2 percent of the more than 90 million single-family units in the U.S. Similarly, NRHC members comprise just 2 percent of the 16-million-home market.

Single-Family Rentals as a Share of the Total Rental Housing Stock

Source: Most Single-Family Investors Hold Fewer Than 10 Units, Urban Institute, Oct. 2017
Note: Data from 2015 American Housing Survey; single-family includes one- to four-unit properties

The single-family industry is still in its nascent stages. The federal government is just beginning to explore the best ways to support the industry as it continues to grow, and operating margins have grown slowly but steadily as operators have built scale and refined their platforms.

Most Single-Family Investors Hold Fewer Than 10 Units

Source: Five things that might surprise you about the fastest-growing segment of the housing market, Urban Institute, Oct. 2017
Note: Data from Investability

Single-family rental is well-positioned for future growth: Green Street Advisors estimates that 3.9 million new renter households will form by 2020, leading to 1.5 million new units of SFR demand.

2016-2020 Estimated SFR Demand Forecast (cumulative, in millions)

Emergence of Institutional SFR

For decades, single-family rental homes have been an integral part of America’s housing fabric. Prior to the mid-2000s when homeownership rates hit their peak, there were 12 million single-family rental homes across the country, and residents largely rented from part-time landlords who owned additional homes as investment properties.

Industry Growth

Prior to the emergence of institutional SFR, small landlords typically owned one to five homes, often near their primary residence. Beginning around 2006, NRHC members and other investors saw an opportunity to bring a broader platform and industry-level expertise to the industry, much like the multifamily industry was institutionalized in the 1990s.

While the financial crisis introduced new housing supply and increased rental demand, the growth of the institutional single-family rental industry had already begun in the years prior.

Today, institutional investors make up 2 percent of the overall single-family rental market. By comparison, institutional investors own 55 percent of multifamily rental units.

New technology was a key factor in the genesis of industry by enabling property management at scale. Today, these technologies continue to provide residents with a superior renting experience.


FAQ

What markets does the industry operate in?

To date, NRHC members have entered a number of markets across the U.S., including: Atlanta, Miami, Tampa, Phoenix, Houston, Dallas, Chicago, Denver, Los Angeles, San Francisco, San Diego, Sacramento, Orlando, Seattle, Charlotte, Jacksonville, Minneapolis and Las Vegas.

Our members largely avoid the “hottest” housing markets, where rents tend to be highest, instead focusing on areas that are well-positioned for growth and have a large population of working families in search of quality, spacious rental housing options.

How are single-family homes typically acquired?

Many of the homes purchased by NRHC members are not available for purchase through the usual channels. Typically, these homes have gone through the foreclosure process with a bank or mortgage servicer and are sold as-is, for cash only, through trustee sales.

What types of properties do NRHC members typically purchase?

NRHC members typically buy three-bedroom, two-bathroom single-family homes priced at the mid-range of the local market.

What is the typical turnaround time — from purchase to renovation to lease?

The renovation process typically takes about four to six weeks; however, in some cases it can take a few more weeks, especially for older homes. After that, a home is ready to be leased.

How much money goes into renovation?

Homes purchased by an NRHC member typically undergo extensive renovations, often equivalent to 10 percent of the home’s value. Data show that average home renovation ranges from $15,000 to $25,000.

How do NRHC members manage and maintain their portfolio of homes?

Before we move into a market, we strive to ensure the right team and tools are in place to acquire homes and also to lease, manage and maintain the properties to the highest standards. Underpinning all this is the industry’s goal of hiring top professionals, ranging from real estate agents to HVAC experts, to support our homes and communities, and leveraging innovative technological solutions to streamline property management across a given market. NRHC member associates understand each market and all the idiosyncrasies, patterns and local trends, which enable us to serve residents and prospective residents extremely well.

How did the single-family rental industry develop?

Single-family homes for rent have been part of the U.S. housing landscape for decades. Even before the financial crisis, an estimated 12 million homes were rented out by their owners. The market for single-family rental homes really began to take off before the crisis, in 2006, when institutions began bringing professional management and a long-term focus to this industry, enabled by the broad-level regional and national expertise that comes from being an institutional operator and the ways in which scale enables property management cost savings.

Serving the industry at the highest level meant there was an opportunity to create professionally serviced, national single-family rental platforms, which mirrors what happened in the multifamily market 20 years ago.

Today, institutional investors make up 2 percent of the overall single-family rental market. By comparison, institutional investors own 55 percent of multifamily rental units.

What's the difference between institutional investors/owners and small-scale investors/owners?

As demand grew for single-family rentals, NRHC members saw an opportunity to raise the bar and create a differentiated single-family rental experience. We strive to offer renters the highest quality and service through homes that are professionally maintained by management teams and backed by institutional owners who provide stability, peace of mind and the highest servicing standards. Our members’ scale and access to leading vendors and service providers allows them to streamline the property management process, leading to improved financial performance and a superior rental experience.

How are rental rates determined?

As with most rentals, rates are based on a) the value of the home and b) local market conditions. If our member companies unilaterally raise rents beyond what local markets can handle, they will lose residents and their businesses will struggle. In comparison to rental costs for a comparable multifamily apartment unit, the rental rate typically charged for a single-family home with an average square footage of 1,800 feet, a full yard and all the benefits of a house is generally lower.

What impact do renters have on communities?

NRHC members encourage their renters to be active, responsible members of their communities. In fact, many of the residents that rent our homes are renting in communities they have already lived in for many years.

Is the industry in competition with first-time homebuyers?

First-time homebuyers are challenged in the current housing market, but it is not due to the growth of the single-family rental industry. Institutional investors are no longer buying a significant portion of homes directly off of the MLS. Today, SFR owners’ purchasing is limited to a handful of markets and has slowed considerably from its peak, and it remains a very small part of the overall market.

Institutional SFR owners will never pay the same amount as a first-time homebuyer for the same property. To the extent our members do purchase homes from MLS or MRIS databases, their business model requires them to purchase at a discount from the fair market value to meet their financial performance metrics. If other buyers are willing to pay fair market value, they will beat our member companies every time. Additionally, our members buy homes that require significant repair and rehab — homes that would be unattractive to first-time homebuyers and oftentimes do not even qualify for financing.

First-time homebuyers are indeed challenged in the market, but not because they are competing with deep-pocketed investors. Instead, there are larger market forces at play: first, housing supply is at an all-time low, meaning there are fewer homes to purchase and not enough to meet demand; and second, home prices are at record highs, pricing many first-time homebuyers out of the market altogether.

What is securitization and why are rental contracts being scrutinized?

Securitization is a common financial practice that is well regulated and regularly done with all types of assets. The securitization of single family homes is similar to any other commercial or residential mortgage trust used to finance properties of all types. In this case, it is simply the securitization of a group of assets and is no different from the way most apartment buildings in America are financed.

Will institutional investors sell their portfolio of homes?

We are committed to building national, long-term businesses that cater to the portion of the market that wants the benefits of a single-family home but can’t or doesn’t want to purchase a home. Although our members continue to refine their portfolios to support continued financial success, they have proven they are in it for the long haul and selling all our homes at once would work against these goals. We strive to provide high-quality, professionally managed rental properties now and well into the future, just as the institutions that entered the multifamily market more than 20 years ago helped create higher standards across the industry. We have no interest in making “quick flips.”

Are institutional owner-operators absentee landlords?

While our members own homes in markets across the country, they have property management staff on the ground in each individual market, and open entire offices in many of their leading markets, allowing our members to combine the personalized local service of a mom-and-pop landlord with the operating knowledge and efficiency of a large-scale rental home company.

NRHC members also use the latest technological solutions — such as keyless self-showing for prospective tenants and the ability to pay rent and submit maintenance requests online — to provide service to their renters.


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