Single-family rental (SFR) companies like Invitation Homes and American Homes 4 Rent, which got their start by buying homes out of foreclosure in the aftermath of the 2008 housing collapse, have had a harder time finding new rental properties to buy since the housing market has recovered.
The so-called “iBuyers,” tech companies that buy homes from motivated sellers and then flip them to a new owner after renovating it, are faced with a challenge: selling renovated homes in a market where home prices have been pushed beyond people’s capacity to pay. This leads to homes lingering on the market.
SFR companies needing to buy and iBuyers needing to sell has resulted in a temporary marriage of convenience, according to new data from ATTOM Data Solutions, a leading real estate data provider. SFR purchases of homes from iBuyers rose from just 3.9 percent of total iBuyer sales in 2016 to 9.6 percent thus far in 2018, with a total of 743 iBuyer sales to SFR companies this year.
“It’s not exactly a perfect marriage, but it may be becoming a better fit because SFR operators are more hungry for inventory, and demand may be weakening somewhat from owner-occupants as mortgage rates rise,” said Daren Blomquist, senior vice president at ATTOM.
The rise of institutional SFR companies has been one of the most significant developments in the real estate industry since 2008. Lead by the private equity giant Blackstone—which launched the largest of the SFR companies, Invitation Homes—investors bought tens of thousands of homes out of foreclosure at bargain prices and formed companies to rent them out. Many of these companies have gone public, including Invitation Homes, American Homes 4 Rent, and Front Yard Residential.
But with the housing market having long since recovered, the bargains are gone—and the pace of acquisition for these companies has slowed dramatically. According to data from Amherst, a real estate investment firm, institutional investors purchases of single-family homes peaked at just under 80,000 in 2013. Through the first of 2018, the total stood at less than 20,000.
And up until recently, housing inventory has been scarce for investors and homebuyers alike, so it would make sense that SFR companies are turning over every rock to find properties for purchase.
iBuyers aren’t the only source. Built-for-rent housing, where homebuilders produce homes or even entire neighborhoods for the purposes of another entity renting them out, has been steadily rising over the last couple years, according to data from the National Association of Homebuilders. SFR companies have been among the beneficiaries of this.
For iBuyers—lead by Opendoor, Offerpad, and Knock—SFR companies could be a security blanket as the housing shifts from a sellers market to a neutral market. iBuyers claim the vast majority of their revenue comes from a transaction fee, not from house prices that appreciate between the time they buy the house, renovate it, and sell it.
Because the housing market has been steadily rising since iBuyers launched in 2014, their business model has yet to be tested in an environment where home prices are holding steady or even falling. Flipping homes gets complicated when home prices aren’t rising. SFR companies, with their infinite access to capital, could be reliable buyers.
SFR companies have come under fire in the past for alleged mistreatment of tenants. Accusations have included hasty automated evictions, delayed or ignored maintenance requests, squalid living conditions, unchecked bug infestations, and automated annual rent increases. Third-party data validates the latter, as renewed leases come with a remarkably consistent 4 percent rent hike.
Defenders of SFR companies point to the fact that they remain a very small percentage of the overall single-family rental properties. That’s true: SFR companies own roughly 250,000 of the 18 million SFR units in the United States. About half of SFR landlords in the country own only one unit.
However, this defense may not last, as it’s clear SFR companies have eyes on expansion.