What’s in Store for 2020?
Sidebar to January 2020 Profile: Altisource: Innovation Points Straight to Evolution
When speaking with a team of individuals with access to as much data as the group from Altisource, it makes sense to cut to the heart of what every real estate investor is wondering with the start of the New Year: Where are we going in 2020?
Fred Heigold III, senior data analyst at RentRange, and Travis Britsch, vice president of specialty operations at Hubzu, joined Hall to shed some light on the question.
“Many of the investors we work with believe the single-family rental market will continue to be a safe play [in 2020] even with uncertainty about interest rates,” Hall said. “Build-to-rent strategies are gaining momentum.”
Rental Trends
Heigold, who has been involved
with RentRange since its inception in 2009 and helped develop the software and
data collection processes, agreed. He said that RentRange data shows rental
prices have risen steadily over the past five years and are likely to continue,
while single-family vacancy rates decrease.
“There are some markets that have seen nearly 10% year-over-year increases in rent prices, and the median rental rate change is 22.5% over the past five years in the largest 50 metropolitan statistical areas by population,” he said.
Heigold also observed that new construction rates have not kept pace with demand since the housing crash, and the new development supply is not providing enough affordable housing. He did observe that rental price increases have slowed over the last two years, noting that the trend of residential tenants signing multiyear leases to cap rent increases could be playing a role in this.
“When a renter leaves, a landlord may escalate the price [of rent] significantly, by around 10%, while they might take a lower increase, like 5%, on a re-lease,” Heigold said.
Britsch, whose work within Hubzu places him in close contact with investors working with distressed inventory, said that investors are currently still purchasing distressed properties both to flip and to hold and rent.
“Of our roughly 1.7 million registered users, about 70% are investors buying to fix-and-flip or fix-and-rent,” Britsch said.
Hall noted many investors first encounter Altisource through Hubzu and then tap into additional services as they build their portfolios, for example, using the company’s field services, data analytics, and title and valuation services.
Market Trends
Britsch said that in terms of
transaction volume and values, “investor purchasing was still rampant toward
the end of 2019 in many of the ‘hot markets’ around the country.”
He cited California, Colorado, Florida, New York and New Jersey markets as being particularly active for online auctions. Both individual and institutional investors use the online marketplace to acquire and dispose of properties individually and in bulk.
Not surprisingly, Heigold observed that smaller-scale, mom-and-pop investors tend to keep rent rates lower than their much larger peers.
“These investors will often work with a good tenant to keep them in place as long as the rent covers mortgage and expenses. However, they have much less tolerance for vacancies [than institutional players] because they pay out of pocket when the unit is vacant,” Heigold said.
All agreed that most large markets will likely see increasingly flat yields in 2020.
“Yields are decreasing or flat in large markets,” Heigold said. “Because yields are decreasing, this means that home prices have been rising faster than rents over the past couple of years. Over the last few years, home prices have been catching up to rent increases.”
Opportunities in 2020
As the pace cools, individual
investors may have more opportunities in markets of all sizes.
“Institutional investors are still a force, but they have slowed their buying considerably,” Heigold said. “Mom-and-pop investors continue to dominate the single-family rental sector. With more capital flowing into the SFR industry, we have seen an increase in middle-market operators and expect this segment to keep growing over the coming year.”
Heigold, Hall and Britsch also recommended investors acquire properties with diversification in mind, investing in multiple markets.
“Of course, a vendor that offers a national scale of experience and technology solutions across multiple products and services will help these operators,” Hall said.
