Suneet Singal Is Bullish on Institutional Opportunities in Single-Family Home Rentals

Financial architect and CEO of First Capital Suneet Singal sees opportunities ahead for institutional investors in single-family home rentals (SFRs), especially in build-to-rent (BTR) communities. The profitability of SFRs has greatly increased as REITs have transitioned from the scattered-site approach, predominating in acquisitions after the 2008 financial crisis-related housing bust, evolving to increasing investment in BTRs today.

Renters appreciate the added amenities of BTR communities. These “horizontal apartments” often offer detached garages or at least off-street parking. They advertise private outdoor space and other amenities not possible in apartment communities. As a result, SFRs have much lower turnover rates and significantly lower vacancy rates than apartments. They also show strong and stable growth in rents.

Data for two publicly traded SFR REITs shows 170 percent returns since 2015, compared to 70 percent for both apartment REITs and all-equity REITs over the same period.

Suneet Singal Offers Five Reasons Institutional Investors Should Consider SFR REITs

Now that SFR rentals have a track record as a viable investment model, Suneet Singal advises, there are five reasons institutional investors should consider adding SFR REITs to their portfolios.

• Resilient and strong drivers of demand. SFRs appeal to renters across multiple demographic groups. These include temporary workers, young families, empty nesters, and others. An increasing percentage of the market has become familiar with the product type. The asset class proved to be resilient during the shutdowns of 2020 and 2021, and continues to be attractive due to rising costs of sales of single-family housing.
• Limited supply of new SFRs. BTR development is not keeping up with demand. Single-home contractors all over the United States face delays due to supply chain issues. Some SFR investors are moving to a rent-to-own model to take advantage of rising home prices.
• Attractive economics. SFRs show low turnover and vacancy rates and strong rent and revenue growth.
• Operating efficiencies. The costs of operating SFRs are consistent with operating costs throughout the multifamily sector.
• Fragmented, dislocated, but large market. Institutional investors have advantages over the “mom and pop” investors who still dominate the single-family rental market.

Demand for SFRs among Millennials is strong and likely to stay that way. Many Millennials have reached the stage of life that they would prefer a SFR over an apartment. Their issue is that they are priced out of the market because of inadequate savings and excessive debt. Additionally, the shift of jobs to working at home has made suburban locations more convenient and attractive over rentals in cities.

Suneet Singal Also Points Out Five Challenges for SFR Investors

Singal also points out inherent risks in the SFR market. Zelman & Associates reports that institutional investors have earmarked up to $110 billion for purchases of SFRs and BTR communities in 2023. Home prices are rising. The cost of capital is rising. The potential for consumer protection legislation exists. Land, labor, and materials costs are increasing for new BTR projects.

Still, building rental housing is often less expensive than buying it. Institutional investors will have to answer the concerns of communities and housing advocates, but the outlook is bullish for BTR and SFR REIT investments across the US.