Single-family rental homes have long been preferred by mom-and-pop investors looking to diversify into income-producing assets that don’t move in tandem with the stock market. Over the last decade, institutional funds have also plowed capital into single-family rentals (SFRs). Now even renters are frequent buyers of the properties, according to Rich Ford, chief development officer and co-founder of Roofstock, an online marketplace for buying and selling SFRs. More than 50% of investors who use the service are renters. What’s more, 62% of Roofstock’s investors live more than 1,000 miles away from their investment properties.
“We have a lot of millennials on Roofstock who live in expensive housing markets like California and New York who are renters themselves, but who would like to invest in the U.S. housing market,” said Ford, who participated in an SFR discussion at the National Association of Real Estate Editors conference this week in Las Vegas (#NAREE18). “They are purchasing rental homes in markets such as Charlotte, N.C., Memphis, Tenn., and Indianapolis, and are using the acquisitions as a means to build wealth.”
While the SFR market is still highly fragmented, Morningstar’s most recent examination of SFR portfolios owned by institutional investors indicates that the asset class continues to enjoy healthy fundamental growth. The average vacancy rate in securitized SFR pools across 20 U.S. markets declined to 4.1% in April from 4.5% a year earlier, according to Morningstar. The research organization also reported that the average blended SFR rental rate climbed 4.3% in April, a year-over-year increase of 30 basis points. (The blended rate combines rental rates for renewals and newly leased properties that were previously vacant.)
In conjunction with the NAREE show, Roofstock this week rated the top 10 markets in 2018 for real estate growth based on the expansion of the prime rental cohort ages of 20 to 34 and job forecasts. Here’s the company’s take on the markets, and where available, the average blended SFR rental rate growth based on Morningstar’s coverage of institutionally owned SFR properties:
- Orlando. Renter cohort growth: 2.8%. Employment forecast: 4%. The leisure and hospitality industry fuels employment in this popular tourist destination. SFR rental rates grew 5.2% in April, a year-over-year increase of 30 basis points.
- Raleigh, N.C. Renter cohort growth: 4%. Employment forecast: 3.7%. The market boasts a major technology research park that is fueled by the work and graduates of three major area universities.
- Austin, Texas. Renter cohort growth: 2.5%. Employment forecast: 3.9%. One of the fastest growing metros in the country, the capital of Texas includes many well-known technology firms, including Apple.
- Charlotte. Renter cohort growth: 2.9%. Employment forecast: 2.5%. Charlotte features a strong job and population growth. Ernst & Young and Corvid Technologies are among companies adding jobs.
- Salt Lake City. Renter cohort growth: 1.8%. Employment forecast: 3.2%. Developments such as a new Amazon fulfillment center and the first phase of the 50 million-square-foot SLC Port Logistics Center are in the works.
- Houston. Renter cohort growth: 1.6%. Employment forecast growth: 3.6%. A rebound in oil prices has brightened job creation prospects. The SFR rental rate grew 3.6% in April, a year-over-year increase of 190 basis points.
- Atlanta. Renter cohort growth: 2%. Employment forecast: 2.8%. Gross SFR returns exceed 8%, according to Roofstock. The SFR rental rate grew 4.9% in April, a year-over-year increase of 30 basis points.
- Phoenix. Renter cohort growth: 2%. Employment forecast: 2.8%. A relative low cost of living and a business-friendly climate are attracting companies and workers. The SFR rental rate increased 6.7% in April, up slightly from a year earlier.
- Seattle. Renter cohort growth: 1.8%. Employment forecast: 3%. Amazon and Microsoft anchor this tech market, where Facebook recently moved into new offices and increased headcount.
- Tampa, Fla. Renter cohort growth: 1.2%. Employment forecast 3.8%. The market enjoys a vibrant healthcare presence and one of the strongest job forecasts in the state. The SFR rental rate grew 4.4% in April, up from 3.1% a year earlier.