Making Sense of the Single-Family Rental Industry

Invitation Homes strategically focused on the best, supply-constrained neighborhoods in high-growth markets, where household formation has grown 90% faster than the national average. While building the business, Invitation Homes took advantage of the opportunity to buy homes below replacement cost. They have since invested in operations that allow them to build brand new homes and rent them out for a reasonable return. Many of the initial maintenance and service challenges have been resolved, and Invitation feels confident that annual maintenance will be in the high $2,000s per year per home, with lower expenses in the drier markets. Property taxes eat up half of the expenses.

The typical Invitation Homes tenant is:

• 39 years old (born in 1979)
  
  
• A dual-income household earning $100,000+
  
  
• Renewing their lease 70% of the time
  
  
• Willing to pay extra for a suite of services, including upgraded paint and flooring

The single-family rental industry has a long road ahead. Only about 250,000 of the 16 million rental homes in the US are owned by institutions, and Dallas thinks the industry can easily get to 2 million. Invitation Homes is constantly juggling the portfolio, selling some homes with operational issues, local municipality issues, rising property tax issues, and even homes whose market values have appreciated so much that selling the home makes more sense than continuing to rent it.

Dallas expects to see more consolidation because:

1. Good operators have emerged. Good operators can pay low yields for homes owned by poor operators and turn them into higher-yielding assets.
   
   
2. Distressed capital eventually exits. A lot of money devoted to buying distressed homes will seek an exit at some point.
   
   
3. New capital is entering. New capital seeking lower risk and lower returns has recently entered the space.
   
   

We are excited about the future of the single-family rental business. Several million households will soon have the opportunity to rent from a professional landlord, much like apartments renters have been able to do for decades. Newly built homes intended for rent are popping up all over the south, and are making their way into the business plans of many of our masterplan clients. If you want more information on the single-family rental business, drop us a line here.