“Now they are becoming developers themselves. Two of the largest institutional investors, Invitation Homes, which merged with Starwood Waypoint last year, and American Homes 4 Rent, are developing their own built-to-rent projects from North Carolina to California.”
Leasing Lifestyle: In recent years, institutional investors (defined as those owning more than 10 properties), started buying newly built-to-rent homes following a long hiatus after the foreclosure flood ended five years ago. Instead of buying bargain basement homes, many of these real estate investment trusts and private equity funds are buying properties purpose-built as rentals.
The number of single-family homes built to rent increased over the past four quarters from 33,000 to 37,000 homes. Last year saw the largest number of built-to-rent houses completed in 14 years. In the first quarter of this year, built-to-rent homes accounted for 4.3 percent of all single-family starts. The new homes helped to raise the institutional investor market share to 37 percent of all single-family rentals, a new high, according to Attom Data Solutions.
The allure of new single family homes
Though built-to-rent homes make up a tiny percentage of new home construction, some observers believe this is just the beginning of a trend.
“We believe that number (of new homes built for rent) will increase significantly over the next several years. We expect detached homes for rent to become an important segmentation opportunity for the top masterplans in the country, who will no longer ignore 10 percent of housing demand,” real estate consultant John Burns said.
Why would a business built on a model based on buying and rehabbing low-cost foreclosures switch to new homes?
After a long hiatus, institutional investors are seeking to increase their stake in rentals to take advantage of demand, and bargain-priced properties are rare. New homes require less maintenance than existing homes; they can command rents that are 5 percent to 8 percent higher; and they’re more likely to attract top quality tenants.