Institutional investors moving into single-family rentals

Major investment firms are pouring money into the residential real estate market. While this is having ramifications throughout the market, it is causing major changes in single-family rentals, as big firms have been able to buy out smaller landlords.

There has been a marked uptick this in the amount of activity in the residential real estate market by institutional investors. As just one example, Canadian real estate company Tricon Residential has recently embarked on a $5 billion venture with three major investors that will help it acquire 18,000 single-family rentals across the United States.

This is just one example of a broader trend. Investors, both private and institutional, purchased 67,943 single-family homes in Q2, 2021. This is the highest number of homes purchased by real estate investors in any quarter on record. While this represents a fairly small segment of the total number of homes purchased, it is still up 15.1% from Q1, 2021.

In some regions, such as Phoenix and San Diego, investors are especially active. Nearly 25% of all homes purchased in Phoenix in the second quarter of this year were bought by investors. This is a year over year increase of 176.6%! In total, the value of all homes purchased by investors in the country this quarter was $48.5 billion.

With institutional investors pouring so much capital into single-family homes, the single-family rental market is changing significantly. Currently, most single-family rentals are owned by individual “mom and pop” landlords or smaller, local companies. This may be changing.

According to the National Rental Home Council, a trade group, the COVID-19 pandemic and economic lockdowns have had a huge impact on single-family landlords. The group published a survey reporting that 11% of single-family rental landlords had sold at least one property in the last year. A further 12% sold all of their properties.

In addition to the generally sluggish economy of last year, the recently lifted eviction moratorium has had a big impact on small-scale landlords. Institutional investors are naturally better equipped to navigate the economic and bureaucratic difficulties of the current market.

Many investors are focused on the lower end of the market, purchasing more affordable homes so that they can flip or rent them out. Recent data from Redfin shows that while the price of all homes is rising, it is increasing fastest at the extremes of the market. That is, the median price of the top 5% of homes on the market has risen 25.8% year over year. The median price of the “most affordable” homes, or the bottom 5% of homes on the market has risen nearly 19% year over year. The median price for such homes is currently $108,000.

This trend is even more extreme in St. Louis. Here, the median price of homes in the “most affordable” category was up 53.1% year over year to $23,000. The price of luxury homes in St. Louis grew more slowly, up only 6% year over year.

Rent is also up in St. Louis according to data from the site RENTCafe. They report that rent has up 5% year over year as of June 2021. At $1,015 it is still well below of $1,482.

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