Investing in single-family rentals, or SFR real estate, has long been a popular alternative to public markets. As SFR returns are typically not considered correlated to the stock market, they are attractive to a wide range of investors looking to reduce their market exposure.
Single-family homes are the most common form of housing in the United States. Of the approximately 140 million housing units in the United States, approximately 90 million are single-family homes. There are over 15.8 million SFR units, making up about a third of the United States rental stock and about 11% of the US housing stock.
Here we take a closer look at single-family rentals and how they fit into the broader landscape of real estate investing.
Single-family rentals, or SFRs for short, are single-family homes that are rented out to tenants. Prospective renters are attracted to single-family homes because they are generally larger than multi-family units, located in more suburban areas, have access to outdoor space and overall represent much of what a family with kids may look for.
From the homeownership peak in 2004 to 2018, the number of married couples with children that owned homes fell by 2.7 million, while the number renting rose by 680,000. These changes have meant that families with children now make up a larger share of renter households (29 percent) than owner households (26 percent).
Investing in SFR real estate is popular among both retail and institutional investors. In general, these properties make money from their net operating income, which is the rent minus the operating expenses.
The idea is to buy a home, rent it out, collect income, and then sell the property later down the line. SFR investments allow buyers to benefit from potential rent growth and house price appreciation, which in turn are dependent on factors such as location, unit type, unit condition, amenities, price point, and market dynamics. Controlling for operating expenses such as management costs, repair costs, and maintenance costs is also a critical component of the investment.
This strategy gives retail investors the ability to leverage their local knowledge and presence for operational management. Its popularity amongst retail investors has led to the market being very fragmented. It is dominated by ‘mom and pop’ investors who own between 1-10 properties and account for an estimated 88% of SFR unit ownership.
Since the financial crisis, there has been an uptick in institutional interest in the asset class. While the asset class is still dominated by smaller investors, institutional players with over 2,000 homes each are estimated to own approximately 1% of SFR units. Professional management companies and technological advancement have made it possible to operate larger scale portfolios of SFRs economically.
Certain economic and demographic factors have come together to make single-family rentals a potentially attractive asset class. Here are some of the important trends:
Preference for renting over buying
Millennials and boomers have shown an increased preference for renting. In fact, in the first three quarters of 2019, rentership rates increased by 4.5 percentage points among households aged 35–44 and 5.3 percentage points among households aged 45–54. Notably, even among households aged 55–64, the renter share increased 4.2 percentage points over this period.
Among the millennial age group, which is the largest living age group in the United States, there has been a trend towards later homeownership and an increased propensity to rent. Renting allows people to be ‘asset-light’ and therefore, have a more mobile lifestyle that allows for travel and employment mobility.
Homeownership has become increasingly unaffordable
Interestingly, public opinion surveys indicate that most renters are satisfied with their current housing situations, but still desire to eventually own homes. This is an indication of how deeply ingrained the notion of owning your own home is in the American psyche.
With home prices rising faster than wages in roughly 80% of U.S. markets, many people are renting out of necessity. Increases in home prices, more restricted access to credit, and high levels of student loans have made homeownership unaffordable to many. The inability of being able to afford homes has become a bigger issue in larger metropolitan areas where there is a higher concentration of employment opportunities. In these areas, land constraints and lagging construction activity has generally led to significant increases in home prices. These trends have made it difficult for many to consider homeownership until later on in their careers, hence the increased in the demand for rentals.
Rents for SFR real estate have been increasing over time
The consistent pace of single-family rent growth is noteworthy given the large fluctuations in the single-family rental stock over the period of five years from the third quarter of 2014 to the third quarter of 2019. Rents for single-family homes have been climbing consistently. There has been a 3% year-over-year increase in the rent charged for SFRs.
A lack of moderately priced rentals, but high demand
The supply of rental properties has risen alongside demand, but new residential construction activity has lagged. Furthermore, the construction activity that has occurred has been largely focused on higher-priced rentals, resulting in a shortage of moderately priced rentals. Renters today have higher incomes and are more likely to be families with children than in the past, implying increased demand for higher-end apartments as well as for single-family homes.
A key strength of an SFR strategy is the flexibility offered by these income-generating assets. Unlike a multi-family property, a portfolio of SFRs can be sold in whole or in parts. The sales themselves can either be to an individual homeowner or to another investor. This means the specific sales strategy and timing for a portfolio can be adjusted in response to market dynamics.
Overall, there is a need for moderately priced rentals in the United States. Single-family rentals can help provide families with an affordable option to live in a single-family home in the suburbs surrounding high employment metro areas.
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]
3 "Annual interest" represents an annual target rate of interest and "term" represents the estimated term of the investment. Such target returns and estimated term are projections of the returns or term and may ultimately not be achieved. Actual returns and term may be materially different from such projections. These targeted returns and estimated term are based on the underlying agreement between the SPV and borrower or originator, as applicable.
4 Reflects the initial quarterly distribution declared by the board of directors on February 6, 2020, which will be payable to stockholders of record as of June 10, 2020, and the initial offering price of $10 per share.
5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.
No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.
Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.
Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.
Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.
Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.
Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.
Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.
Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.
Banking services are provided by Evolve Bank & Trust, Member FDIC.
Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.