ATTOM: Investors Buy More Single-Family Rentals Despite Declining Returns

Institutional investors purchased more single-family rental properties this year even as average returns dropped to a nine-year low for SFR houses purchased so far in 2016, reported ATTOM Data Solutions, Irvine, Calif.

The average annual gross rental yield–annualized monthly rent divided by median home price–in the 473 counties ATTOM examined equaled 8.7 percent for properties purchased through July, down from 8.8 percent for the same period in 2015 and the lowest level since 2007.

“While average rental returns on properties purchased so far in 2016 are at a nine-year low, these returns are still attractive compared to alternative investing opportunities,” said ATTOM Senior Vice President Daren Blomquist. “After a drop-off in single-family purchases by both individual and institutional investors over the past two years, we’re starting to see investor acquisition activity pick up again.” 

Blomquist noted that shifting attitudes toward homeownership appear in “stubbornly low” homeownership rates and more than 18 million non-owner-occupied single-family houses–one in every four single-family houses. “These single-family rental investors will be an important and likely growing force in the real estate market for years to come,” he said.

ATTOM said counties with highest annual gross rental yields for single-family rental houses purchased in the first seven months of 2016 include Clayton County, Ga. in metro Atlanta (24.3 percent); Baltimore City, Md. (22.8 percent); Wayne County, Mich. in the Detroit metro area (18.5 percent); Bibb County, Ga. near Macon (17.7 percent) and Bay County, Mich. (17.6 percent).

Meanwhile, HomeUnion, Irvine, Calif., reported that average cap rates for both financed and non-leveraged single-family rental properties dropped 90 basis points to 5.2 percent.

“With a paucity of lower-priced inventory, single-family rental investors have started to target higher-priced assets,” said HomeUnion Research Director Steve Hovland.

Hovland noted that more SFR buyers now pay cash rather than mortgaging newly acquired properties. “The elevated price of all-cash sales is indicative of investors’ uneasiness with lower-risk, dividend-yielding assets,” he said. “More buyers are willing to lock in returns over the next five to seven years because they doubt the Fed’s forthcoming monetary policy will greatly benefit them.” 

Hovland called investors “frustrated” with sitting on cash. “Each passing meeting with inaction from the Fed casts further doubt about how much fixed-income investments will improve over the short term,” he said. “Therefore, the attractiveness of SFRs is getting amplified.”

Nationwide, institutional investors purchased 2.7 percent of all single-family houses sold in 2016’s first seven months, up 29 percent from a 2.1 percent share a year ago, ATTOM said. The institutional investor share of single-family purchases nationwide peaked at 8.4 percent in 2008.

Gary Beasley, CEO and co-founder at Roofstock, an online marketplace for tenant-occupied single-family rental houses, reported seeing several public companies return to buying, “along with other institutional investors who have been on the sidelines who now want to get involved.”