- Investors are plowing into the single-family home market, buying up houses to rent out.
- The demand for rental homes is now spurring developers to build entire communities from scratch.
- The Wall Street Journal reports that suburban rental developments are underway in nearly 30 states.
- See more stories on Insider’s business page.
It’s no secret that investors large and small are buying up single-family homes and renting them out to tenants who want all the lifestyle perks of a house without the obligations of owning one.
After a record buying spree in 2020, the trend is heating up with institutional buyers picking up nearly 55,000 homes during the first quarter of 2021, according to data from Redfin.
And in March, the largest operator, Invitation Homes, told investors it planned to spend $1 billion acquiring homes this year.
But a growing wave of developers are tapping into that demand by building up entirely new communities of rental homes that are leased and managed like vast, horizontal apartment complexes.
One developer, Transcendent Investment Management, started in 2014 and now manages over 1 million square feet of single-family homes.
“We decided to no longer buy older product, but to partner with homebuilders and be a wholesale buyer of new homes,” CEO Jordan Kavana told Insider.
Today, nearly 30 states are home to such developments cropping up outside cities like Phoenix, Nashville, and Atlanta, according to the Wall Street Journal,
“We didn’t want to get into homeownership,” Joe Paul, a resident of a community in Arizona, told the Journal. “We still want to travel and don’t want to have to maintain a house.”
Offering professional property management, routine maintenance and repairs that are the responsibility of the landlord, not the tenant, the new developments provide a sort of souped-up version of the homeowners’ association model that some communities already have.
In addition, some tenants have gone from owner to renter – and welcome the flexibility of life without a mortgage.
Matt Marooney, who rents a five-bedroom house a house in a community in Georgia, told the Journal that he previously owned a house and that renting has helped him get back on his feet financially. He would like to go back to owning, but not just yet.
Institutional ownership of single-family rental properties has been the subject of much criticism, but analyst Brad Hunter told the Journal that built-to-rent homes make up about 6% of all new homes, but could soon approach 50% as demand grows for more flexible housing.
Homeownership has traditionally been the largest factor in building household wealth in the US, but that equity doesn’t grow when paying rent.
“We need to be thinking more about different ways that people can still own the communities that they live in, outside of the primary residence model,” said Christopher Ptomey, executive director of the Terwilliger Center for Housing at the Urban Land Institute, according to the Journal.
Ptomey suggested several alternatives that could provide the economic benefits of ownership without a traditional mortgage, such as neighborhood-scale real estate investment trusts, or other fractional ownership models.