Despite an expected decline in total mortgage volume, the single-family rental market continues to grow. Even the pros- pect of additional interest-rate hikes hasn’t dampened investor’s appetite. The Mortgage Bankers Association forecasts the
30-year mortgage rate will hit 4. 7 percent by the end of the year, 5 percent by
the second half of 2018 and 5. 5 percent by year-end 2019.
The percentage of real estate investors using mortgages to acquire
cash-flowing single-family rental (SFR) properties is on the upswing as competitive lending opportunities beyond traditional banking widen the credit
box for real estate investors who want to expand their holdings more rapidly
than they could with an all-cash financing model.
One online turnkey portal for investing in real estate predicts that leveraged acquisitions of single-family rentals will surpass cash deals this year for
the first time since 2007. This is arguably a growing opportunity for mortgage
originators who desire to specialize in the single-family rental market.
Here is a quick snapshot of the market and its opportunities, according to
Green Street Advisors:
■ ■ SFR properties comprise about 37 percent of the rental market and
roughly 13 percent of all occupied housing.
■ ■ Institutional investor portfolios represent just 1 percent of the
single-family rental market.
■ ■ Real estate investors like single-family rentals because turnover is
typically lower than with apartments, landlords don’t have common-area
maintenance costs and the asset’s value has meaningful upside compared
■ ■ Home values are still below their peak in many areas, despite rising
prices, and additional home-price appreciation is on the horizon.
■ ■ An estimated 3. 9 million renter households will form between 2016
and 2020. If SFR’s 37 percent market share remains steady, that means
about 1.5 million new single-family rental units will be needed.
Before the housing crisis, real estate investors who wanted a loan to buy a
non-owner-occupied investment property had few options. Typically, an
investor would seek a mortgage backed by Fannie Mae or Freddie Mac, but
this method of financing came with limitations.
Fannie allows up to 10 mortgages per investor when using Desktop Underwriter, but Freddie only allows up to four investment property mortgages.
Although this remains a good and viable option for investors, many also do
not qualify for these mortgages based on debt-to-income ratio requirements.
In the wake of the housing crisis, alternative lenders, including asset-based
lenders and real estate crowdfunding platforms, emerged to cater to the residential real estate investor. Asset-based lenders use different metrics than
traditional lenders, preferring to look at the current or expected cash flow of
income-producing properties rather than focusing on personal income to
qualify the borrower.
Real estate crowdfunders, also commonly called marketplace lenders, have
a host of different models, but those who cater to the SFR investment market
prefund mortgage loans — which speeds up the funding process — and then
sell off the mortgage debt to a “crowd” of investors.
A common thread among all alternative lenders, despite their different goals
and operating models, is the desire to simplify the mortgage process and to
make investment capital more easily available for investors looking to acquire
SFR properties. Most promote speed and ease of use backed by sophisticated
qualifying and underlying technology.
The learning curve
Brokers and originators who want to expand their business beyond owner-occupants to residential real estate investors must take the time to research,
learn and network with like-minded individuals and become specialists in this
<< Investment continued from Page 71
Continued on Page 74 >>