Prospecting Is Getting Harder in the SFR Gold Rush
Use Smart Technology to Strike Gold
by Tim Reilly
A confluence of forces has turned the market for single-family rental (SFR) properties into something resembling a gold rush. As buyers, speculators and institutional investors lean into the market in search for real estate value, the odds of finding an overlooked nugget in the gold mine are decreasing. Timing is the key, and smart buyers who are prepared to act quickly are using the latest tools to find and analyze new properties as soon as they hit the market.
Soaring Home Values Create Opportunity for SFR Investors
Despite the global pandemic and the economic dislocation it triggered, the national real estate market is showing unprecedented strength due, in large part, to a continued supply and demand imbalance. According to a recent Freddie Mac housing analysis, the housing stock is about 4 million single-family homes short to meet the national demand. And, as a direct result of the imbalance, home prices nationally appreciated at an annualized rate of 9.3% in the second half of 2020, according to the Radian Home Price Index. Across the country, states set records in nearly all transactional categories, including 47 states reporting the highest average sales price on record, and 31 states reporting historically low days on market to sale.
Although a housing stock shortage is the linchpin underlying the lack of supply, a host of pandemic-related factors have been fueling the housing demand. Historically low interest rates, shifting preferences for suburban housing, and COVID-related household consolidation have acted like gasoline on a lit fire. As the pandemic forced millions of Americans to lock down and work remotely, demand surged for bigger houses away from crowded urban areas. And, as more people were priced out or frightened away from the competitive purchase market, the demand for single-family rentals exploded.
According to the Census Bureau, occupancy rates across single-family rentals averaged over 95% in the second half of 2020—the highest in nearly 40 years. The surge in demand also translated to gains in rental rates. Morningstar reported annualized rent growth on vacant-to-occupied properties rose to a high of 7.5% in October 2020. These trends indicate strong, stable investment for SFR owners who are able to get their hands on properties.
A Gold Rush for SFR Properties
SFR homes make up only 11.7% of total national housing stock, according to John Burns Consulting, representing about 16.4 million properties out of a much larger 150 million plus single-family home universe. Most of the rental properties are owned by individuals, known as “mom and pop” landlords, who own a handful of properties each. And further, institutional SFR owners, both large and small, make up just a fraction of the overall SFR market representing about 220,000 properties. Therefore, the larger US housing market is ripe to be “mined” and aggregated by SFR investors.
Meanwhile, as commercial property investments have taken a negative turn due to pandemic pressures, there is a huge amount of money sitting on the sidelines looking for an attractive real estate investment. The Wall Street Journal reported late last year that there is more than $150 billion of private-equity real estate cash looking for a stable investment haven. With traditional hotel and office holdings in limbo, those firms are now looking closely at SFR properties.
Perfect market conditions—supply constriction, low rates, rising home prices and rising rents coupled with smart money looking for strong returns—are creating a single-family housing gold rush comparable to the fervor of California in 1849. The challenge for the property prospectors is finding the perfect nugget with increased competition from other investors and homebuyers all looking for the same hidden treasure.
Using Technology to Intelligently Mine Leads
Investors who leverage smart technology coupled with analytics have a better chance of striking gold before the competition. Those investors still relying on manual searches and outdated technology might as well be panning by hand in the rushing stream. SFR investors need to deploy cutting edge technology and nimble strategy to find their nuggets of gold. Some of the tips and techniques to help the SFR investor community include:
- Customize your buy box filters to identify your ideal investment criteria.
- Fuel your analytics with market data and related inputs to estimate rental market health and home price appreciation.
- Trigger real time alerts when properties that fit your investment profile hit the market so you can act immediately.
- Use interactive, geo-fenced automated valuation tools to assist you with nimble, accurate, and quick decisioning.
- Make informed decisions through a customized workflow that allows you to change your requirements as the market fluctuates by deploying and utilizing a property management/buy platform.
- Leverage an automated pricing engine and incorporate trending analytics to help you estimate sales prices or rental values.
If you have not yet optimized your tech stack for property acquisition, you may be losing out on opportunity to build your rental portfolio. Finding the right technology partner will maximize your chances of success in the red hot SFR housing market. Combining better analytics and management tools with a unified technology-driven acquisition platform will augment your buying strategy and increase your ability to strike gold.
