Once upon a time, finding a single-family home to rent in the suburbs was pretty unusual. Families who couldn’t afford a downpayment on a home were locked out, as were folks who weren’t ready to commit to a 30-year mortgage. No longer. One of the hottest trends to emerge out of the upheaval of the pandemic has been the rise of the single-family rental market.
We’re not talking about existing homes, leased out one at a time by small landlords. These are brand-new houses. Large home builders are now building entire communities of homes for the sole purpose of renting them out. Investors are pouring billions of dollars into the sector.
And you don’t need to be a private equity investor or an overworked landlord to invest. At Fundrise, our platform offers a simple way for you to access this emerging mega-trend. As of October 1, 2021, Fundrise now owns and operates more than 1,000 single family rentals and is projected to scale to nearly 2,000 by year’s end. We are on track to deploy $500 million in this space.
In the third quarter of 2021, the success of these kinds of residential real estate investments helped drive a level of asset price appreciation uncommon in the world of real estate. Our performance over that time period was remarkable. (Read more here.)
Homes are going up quickly: This year nearly 100,000 homes, built to rent, will have started construction, according to an estimate cited in the Wall Street Journal in November.
The real estate consulting firm John Burns, estimates there are more than 200 companies (including ours) in the build-for-rent business — from money managers like BlackRock and J.P. Morgan, to home builders like D.R. Horton and LGI Homes.
Institutional investors restrict the opportunity to invest in this asset class, though. Fundrise is unique because we’ve opened up the opportunity to invest in single family rentals to so many people — our investment minimum is just $10, no other fintech company has managed to match this.
Single-family rentals are essentially a whole new asset class. And renters aren’t simply folks priced out of buying: They include millennials or empty nesters who might want to avoid the hassles of homeownership, and grandparents looking to live near their kids, and city dwellers looking to dip their toe in suburban waters.
“Our renters are people who make great livings, they’re at the early stages of forming their families and what they really desire is a great school district in a great community,” one homebuilder in Scottsdale, AZ, told the Wall Street Journal in a recent article on the explosion in single-family rentals.
The rents for brand-new homes in these developments — often decked out with amenities like granite countertops and stainless steel appliances — are typically higher than they’d be if you were renting out an older home.
And rents for single-family homes are rising overall, up 6.6% from 2020, according to a report by CoreLogic, a real estate data firm. From 2019 to 2020, rents went up by just 1.7%.
It becomes even more clear that single-family detached houses are the hot property if you look at the difference in rent increases between detached units (standalone homes) and attached units (think townhouses): Rents rose 9.2% in detached homes, while attached single-family units grew 3.6%, according to CoreLogic.
Growth like this can signal a major opportunity. If you understand how to approach it.
That means location, location, location
The hottest spots for single-family rentals in the U.S. are generally clustered in “the Sunbelt,” or what we’ve been calling the Smile States, an arc that stretches from Los Angeles to Orlando, encompassing fast-growing cities like Phoenix, Austin, and Atlanta along the way.
Single-family rental rates increased at least 4% in all 12 of the Sunbelt locations that CoreLogic surveyed as part of its recent report.
But this is a trend that predates the pandemic. These regions have been seeing their populations grow for the past decade, compared to the Northeast and Midwest, according to 2020 census numbers released in August.
Phoenix was the fastest growing city in the country over the past decade, according to the Census Bureau. The city’s population rose 11.2% to 1.6 million people last year. Single-family rents went up 14% in the Phoenix metro area, according to CoreLogic’s data.
Chart source: “Domino Effect: Single-Family Rent Growth Rate Spikes in May as Housing Economy Challenges Persist, CoreLogic Reports.” CoreLogic, July 20, 2021.
Overall, four of the Sunbelt metro areas had single-family rental markets with rent gains of at least 10%.
Where do investors fit into this?
The housing boom that grew out of the pandemic is showing signs of slowing down, as the rush to find more comfortable work-from-home housing is abating.
But the single-family rental boom isn’t going anywhere. Home builders are still putting up homes to rent, and the demand is there — especially with home prices so high.
The choice to rent a home is far less fraught than whether or not to buy, and the rental market has always been less prone to boom bust cycles. During the housing crash of 2008, for example, rent prices held relatively steady. If you look at rent data tracked in the Consumer Price Index, you’ll see rent prices going up and to the right in a relatively smooth line. Home purchase prices — especially during the housing crash — have been much more volatile.
This is a crucial concept for anyone thinking of real estate investing, now or in the near future.
It would seem like the “simple way” to take advantage of the rise in single-family rentals would be to buy a house in a Sunbelt city and rent it out.
But how many people have the time to become a landlord, staying on top of ongoing maintenance, securing tenants, paying for insurance, etc.?
Institutional investors are already putting a lot of money into the single-family market. But many of them are actually scooping up for-sale homes, outbidding regular folks, with the intent of redeploying them on the market for renters. They’ve drawn widespread criticism for driving up home prices.
At Fundrise, we’ve focused on investing in communities that are building brand new homes or acquiring existing communities that were always intended to be used for rent.
Over the past year, that has meant successfully deployment of our investors’ capital into single-family investments all across the Sunbelt.
In June, we received financial backing from Goldman Sachs — a $300 million credit facility that will allow us to scale up our investments in single-family rentals even more.
The investment bank’s move is a signal of just how big this trend is becoming on Wall Street.
For decades, the main way to tap into the returns in the single-family home market was to buy a house. And millions of Americans were simply unable to do that.
Now, we’re saying, you can invest in housing without becoming a landlord or even a homeowner. And, thanks to the increase in single-family homes, you can live in the kind of home previously unavailable to millions.
It’s a powerful change.
