Single-Family Rental Profit Margins Begin To Shrink In More Expensive Markets – Trade Observer


The The single-family residential industry has grown by leaps and bounds, spurred by rapidly rising rents due to rising house prices.

However, a report by real estate data firm ATTOM shows that profit margins on three-bedroom single-family home rentals shrank in the first quarter of 2022 as higher construction and acquisition costs outpace rents on the vast majority. American markets. Yet yields are still strong and institutional buyers have made acquisitions this month despite the fight against rising interest rates and inflation.

The outlook for the sector was positive last month at the National Rental Home Council’s annual conference held at the Park Hyatt in Washington, D.C., where industry leaders gathered to discuss housing trends .

“Everyone was optimistic for the rental housing sector,” said Sudha Reddy, founder and managing director of Haven Realty Capital. “We provide housing that is affordable, accessible and in high demand. It will become more and more in demand as homeowner prices rise. Costs have been rising for almost two years. Yields are still healthy enough to keep people investing.

There is certainly recent evidence of this.

Los Angeles-based Haven Realty, in a joint venture with funds managed by Yieldstreet, closed the first phase of a $28.6 million acquisition in Chattanooga, Tennessee, dubbed Hartman Hill, in May. The single-family rental community will have 71 purpose-built single-family rentals when completed on a 26-acre site. Homes range in size from 1,538 to 2,515 square feet.

This is the fourth investment in Tennessee in the past year. Haven also has properties in Nashville and Knoxville. The investment company was an early entrant into the single-family rental industry and operates a $1.1 billion portfolio comprising more than 3,400 homes in nine states in various stages of development, construction or renovation. stabilization.

Other new market entrants are raising funds with the intention of acquiring thousands of units this year.

Dallas-based NexPoint Advisors, an alternative investment platform, earlier in May announced the formation of a REIT in partnership with HomeSource Operations to acquire, build and operate single-family rentals. The REIT launched with an existing portfolio of 1,000 units and will target both existing homes and new builds with plans to add several thousand units by the end of the year. Through an affiliate, NexPoint advises a different REIT that owns and operates more than 22,000 homes.

New construction permits for single-family residences have not recovered from the Great Recession.

Single-family rental yields were above 7% in the first quarter in about half of the 212 counties tracked in the ATTOM report. The report notes that median home prices jumped more than 15% from 2021 to 2022 in half of the counties tracked, while average rents increased by that much in only a third of those markets.

“The good news for these landlords is that their returns should improve as annual rental rates increase, and they should also benefit from house price appreciation over time,” said Rick Sharga. , executive vice president of market intelligence at ATTOM, in a statement.

The highest overall returns were recorded in suburban areas where house prices are low. The best returns were recorded in the Florida (Naples and Vero Beach) and New Jersey (Atlantic City and Trenton) markets. Conversely, the Bay Area has the smallest yields.

In counties with median home prices above $500,000, the largest annual declines in projected yield occurred in the New York area and outside of Boston, where yields fell 16% or more per year in the first trimester. The biggest declines in smaller markets include Lexington, Ky., and Augusta, Ga., down 36% and 13%, respectively. The analysis assessed annualized data on rents and median sales prices for residential properties as well as salary data from the Bureau of Labor Statistics.

David Nusbaum can be reached at [email protected].


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