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This Crazy Real Estate Market Has Some Of The Nation's Largest Home Builders Jumping Into The Rental

July 20, 2022 11:23 AM

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It’s an excellent time to own single-family rental properties, a realization that’s reaching some of the nation’s largest home builders.

According to the National Association of Home Builders, 13,000 single-family homes were built as rentals in the first quarter of this year. Though that number is up 63% from a year ago, it’s still only 5% of the total home building market, and the numbers are rising. The total is almost double traditional levels.

Investment in single-family rentals — buying older homes and building new ones — has grown dramatically. According to John Burns Real Estate Consulting, the sector saw assets of about $3 billion in 2020. In 2021, the figure increased to $30 billion and was expected to reach $50 billion as more prominent institutional investors, homebuilders and landlords jumped into the market.

The opportunity is an easy sell in a red-hot rental market because the demand for rental housing far outweighs availability. Low inventory, declining construction and intense demand from renters shut out of the homebuyers’ market because mortgages are harder to get make rental property investment even more attractive than other opportunities. Families also have been unable to afford down payments in an expensive and competitive buyers’ market.

According to property data and solutions company CoreLogic, the growing demand and tightening supply of rentals means single-family homes for rent are out of reach for many. Nationwide, single-family rents are up more than 13% compared to a year ago.

Some of the largest builders in the country are now jumping to add to the rental inventory. Last year, Lennar Corp. (NYSE:LEN) partnered with Centerbridge Partners and Allianz Real Estate to build and acquire more than $4 billion worth of single-family rental homes. PulteGroup Inc. (NYSE:PHM) also agreed to develop 7,500 single-family rental homes for Invitation Homes Inc.

“A lot of people want to buy a single-family home, but for whatever reason, they’re credit challenged,” Lennar’s Western Regional President Jeff Roos said. “There’s a great deal of demand. There’s an underserved market.”

One Company Made a Recession Bet That’s Still Paying Off

Companies like American Homes 4 Rent (NYSE:AMH) entered the market during the recession in the mid-2000s when homeowners were either walking away from their homes, going into foreclosure or both. The company, for several years, bought inexpensive, distressed homes on the auction block and turned them into rental properties. The company’s momentum in the current market continues, with American Homes 4 Rent building another 100 rental-only communities in the past five years.

“There are not enough quality homes for the number of American families,” American Homes 4 Rent CEO David Singelyn said.

An example is in the NASCAR team hub of Mooresville, North Carolina, north of Charlotte, where American Homes 4 Rent has built a new 200-home rental development with a pool and fitness center. As an added benefit, the company offers landscaping and maintenance as part of the monthly rent.

Post-COVID Americans found they like the flexibility of working at home when possible. This means many don’t want to be tied to a mortgage and, at the end of a lease, have the ability to move to another locale if they want to.

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