Single-Family Rental Fundamentals Favorable

Single-family rental investors saw healthy income and appreciation returns last year in most markets across the country, reported HomeUnion, Irvine, Calif.

“Favorable supply and demand fundamentals and shifting views about renting among millennials and seniors created increased occupancy rates, which resulted in higher rent prices,” said HomeUnion Research Services Manager Steve Hovland. 

Homeunion focuses on value investing in single-family rental properties. Cap rates represent the relationship between an investment property’s net operating income (rents minus expenses) and its market value.

Hovland said Memphis, Tenn., topped HomeUnion’s list of most favorable SFR markets with a 7.3 percent cap rate and San Francisco had the lowest cap rate of the markets studied, just 2.7 percent.Oklahoma City, Pittsburgh, Cincinnati, Houston and Indianapolis all returned cap rates exceeding six percent, while San Jose, Orange County and Los Angeles California as well as New York and Seattle had sub-3.5 percent cap rates.

Vacancy rates in single-family rental securitizations generally declined month-over-month as fewer properties have lease expirations in the winter months and retention rates remained strong in November–the latest data available–reported Morningstar, New York. “Turnover rates have also generally declined, which could be the result of the lower percentage of lease expirations,” the rating firm said. 

Morningstar property-level data showed that the single-borrower single-family rental asset class remained strong.”Overall, turnover rates have been declining for the last few months,” Morningstar said, noting that the the turnover rate dropped for 17 of the 23 deals it tracked in December. 

“With continued turmoil in the securities markets, individual investors are increasingly looking to an alternative to low-yield bonds and risky stocks,” HomeUnion CEO Don Ganguly said. “The SFR market is not correlated to the securities market, and with the right research, investors can find high-yield investments in markets anchored by solid, diverse economies and favorable demographics.”