Single-family rentals
Key Takeaways
SFR
Single-Family Rentals ("SFR") refer to a stand-alone residential property that is designed to house one family, as opposed to a multi-family dwelling like an apartment building. SFR are generally rented by individuals and households in their late 30’s and 40’s across all income brackets.
Building type
Single family rentals can come in various building types with their own characteristics. The suitability of a particular building type for SFR depends on various factors, including the local housing market, tenant preferences, and investor goals.
Primary Drivers
The primary drivers influencing the SFR sector encompass a limited supply of attainable homeownership options, escalating interest rates, and elevated home prices. This situation impedes millennials, anticipated to be the primary SFR renters, from affording a home, thereby boosting demand for rental properties in the sector.
What are Single-Family Rentals?
Single-family rentals (“SFR”) are one-unit homes typically in suburban neighborhoods with amenities such as private yards and off-street parking. SFR represent the second largest category of rental housing in the US, with 15.9 million units nationwide.i
SFR ownership is highly fragmented, and the vast majority of investors are ‘mom-and-pop’ entities, each with a small portfolio consisting of a handful of properties. Institutional investors have expanded over the past few years but still own less than 4% of SFR properties.ii iii
Who lives in single-family rentals?
Renters’ propensity to live in single-family rental homes is highest during their late 30’s and 40’s when household sizes tend to be largest due to children living at home. Residents often seek SFR because of larger home sizes, more privacy, and quieter settings.
The share of high-income renters in the US is on the rise as more people choose to rent amid an ongoing shift in lifestyle preferences. Over one-quarter of renter households earn more than the US median of ~$75,000 per year.iv
Share of High-Income Renters v
What are the secular drivers of this sector?
Subdue SFR Construction Over the Past Decade viii
Limited Supply: In addition to subdued single-family construction for over a decade, single-family construction activity in the US has increasingly targeted higher price points, limiting the availability of new entry-level housing and keeping households in rental units longer. vii
Millennials: SFR saw fundamentals steadily strengthen during the last economic cycle and then accelerate during the pandemic as consumers prioritized larger living spaces following an increase in remote work. Furthermore, as millennials approach middle age, the age cohort of 35 to 49 year-olds is projected to register elevated growth over the next few years,vi which is supportive of SFR demand.
Barriers to homeownership: Elevated home prices, which have jumped 40% since late 2019ix, coupled with high mortgage rates has made purchasing a home more difficult, making SFR a relatively more affordable option.
Prime SFR Target Demographic Anticipated to Grow x
Starter Home Production Has Fallen Significantly xi
What are the common building types?
SFR renters are found across all income brackets, calling for various market clearing rent levels to cater to a diverse range of needs. SFR homes can be categorized into three major tiers of quality based on the below characteristics.
Top Tier
Mid Tier
Bottom Tier
What drives value at the asset level?
Passive Management
Data analysis can provide investors with the tools to identify sought-after locations (e.g., high ranking schools, safe neighborhoods, etc.), which often correlates to strong capital appreciation over time.
Active Management
Institutional SFR owners can efficiently plan and implement property updates at scale, creating efficiencies for procurement and renovation execution typically not available to smaller owners. Institutional players also often professionalize property management services, which can align interests at the asset level and improve leasing activities through broad digital marketing efforts.
Glossary
Capital Expenditures: Investments made to acquire, improve, and maintain an asset.
Detached SFR unit: A stand-alone residential unit normally with a surrounding lot of land.
Attached SFR unit: A twin home or townhome with one or two walls attached to adjoining units.
Mom-and-Pop: Small individual owner-operated business who own small rental properties, typically one to four units, and manage them on a daily basis.
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