niche so they can serve their clients well. Here are a few ways for originators
to hone their skills:
Read up on the market. Plenty has been written about single-family rentals.
Search for some key terms online and start reading. Become familiar with large
institutional investors, but also focus on mom-and-pop shops and regional
players, which represent the vast majority of investors in this space.
Attend real estate investment networking events. Most big cities and
many small and midsize cities have real estate investment associations. These
groups typically hold monthly meetings where originators can meet investors, landlords, property managers, wholesalers, note buyers, rehabbers
and others who could be potential clients or referral sources. Most of these
groups exist for investors to learn from one another, so the educational and
networking component is noteworthy.
Seek out alternative lenders operating in the SFR space. Besides becoming familiar with which local banks and nonbank lenders serve the investment community, originators should familiarize themselves with online
national lending platforms. Find out which ones are reputable and have staying power. While these online lenders may not have brick-and-mortar locations in the originator’s city, it is likely they are licensed to make loans there.
The power of SFR
The cheap lender-owned properties that attracted institutional investors to the
single-family rental market several years ago have mostly faded away, but
interest in renting remains strong. Besides the obvious interest by the millennial generation, baby boomers who want to downsize are among those now
renting or planning to rent in the future.
The Joint Center for Housing Studies (JCHS) at Harvard University illustrated
the shifting composition of the housing market into a renter’s market in its
2016 State of the Nation’s Housing report. The report notes that demand for
rentals is up among all income groups, and that much of the recent demand
has come from middle-aged households, not just from millennials and baby
Fundamentals also remain strong for investors who want to continue to
expand their single-family rental portfolios or for new investors to enter the
rental market. The average annual gross rental yield, calculated by dividing annualized gross rent income by the median purchase price of single-family homes, was 9 percent for the first quarter of 2017, down slightly from
9.1 percent during the same period in 2016, according to surveys of 375 counties conducted by Attom Data Solutions.
In addition, average fair-market rents increased in 2017 in 86 percent of the
markets Attom analyzed, while average wage growth outpaced rent growth
in 67 percent of those markets, creating what Attom calls a recipe for sustainable growth in the rental market. This is great news for originators looking to
expand into investment financing.
Demand for rentals is expected to continue. The JCHS report noted that the
national rental-vacancy rate fell every year between 2010 and 2015, hitting a
30-year low of 7.1 percent in 2015. In addition, renter households jumped by
9 million from 2005 to 2015, the biggest 10-year increase on record, bringing
the number of renters to about 110 million, according to the center’s 2016
report. The 2017 report is scheduled to be released this month.
The erosion of the homeownership rate has likely helped fuel the booming
rental market. According to a CoreLogic report from this past February, more
than 10 million homeowners lost their homes between 2006 and 2016. The
nation’s homeownership rate, which peaked at 69 percent in 2004, declined
to just 63. 4 percent in 2016, the lowest level since 1966.
In addition, according to the CoreLogic report, that 2004 homeownership-rate peak was “inflated by relatively easy mortgage credit primarily provided
by subprime and low- or no-doc loan products.” These products have largely
disappeared from the market since the housing crisis, so many of those previous homeowners are more likely to remain renters today.
Several trends indicate a strong rental market well into the future. For one
thing, minority households could account for the formation of as many as
75 percent of net new households in the next 10 years, according to CoreLogic,
which notes that “these households have historically had lower homeownership rates.” CoreLogic also notes today’s smaller credit box for owner-occupant
mortgages, which could continue to impact ownership rates. Finally, renting
has become more of an accepted lifestyle choice today.
So, despite rising home prices, many housing experts expect rental demand
to remain strong for many years to come, creating a sustained opportunity for
mortgage originators who know how to capitalize on the single-family residential rental-investment market. ■
<< Investment continued from Page 72
Robert Greenberg is chief marketing officer at Patch of Land. He is responsible for branding,
corporate communications, lead generation, marketing automation and managing integrated
marketing activities. Prior to Patch of Land, Greenberg led the marketing efforts for B2R Finance,
where he helped originate nearly $2 billion in real estate investor loans that led to the industry’s first-ever multi-borrower single-family rental securitization. Reach him at email@example.com.