A unique data set provides fresh insights for the growing institutional investor market
More than one third of households that rent live in a single-family home rather than an apartment building. While still dominated by mom-and-pop landlords, single-family rentals — valued at an estimated $2.3 trillion — are increasingly getting the attention of the institutional investor class.
Invitation Homes (INVH), the public face of Blackstone private equity's play in single-family rentals, has a current market capitalization near $12 billion. In the past year, Fannie Mae and Freddie Mac have begun to dip their toes into guaranteeing single-family rental bonds.
With homeownership rates dropping amid an affordability squeeze and stricter mortgage qualifying standards, the rental market is expected to play an increasingly larger role in American's housing picture (approximately 35 percent of households now rent). Yet there is a dearth of comprehensive return analysis of single-family rentals for investors to turn to. A quirk of existing research has been to focus either on the net yield or the price-appreciation potential, each to the exclusion of the other. (Net yield is calculated by subtracting expenses from gross rental income and dividing that by the purchase price of the property.)
"Each component contributes approximately equally to the aggregate U.S. portfolio of housing returns, so excluding one component excludes half of total returns on average," write Andrew Demers, a real estate specialist at Structured Portfolio Management, and UCLA Anderson's Andrea Eisfeldt, in a working paper.