RentAssurance

Single-Family Home Rentals: The New Frontier

Traditionally considered a grey market, single-family home rentals have risen in popularity as families find their own homes foreclosed and/or cannot meet the newer, more stringent mortgage underwriting standards. Demand for single-family home rentals has increased by as much as 25% in some markets.

Real Estate Investment Trusts (REITs) and private-equity firms, such as Blackstone, Waypoint Real Estate Group, and Colony Capital Group have invested hundreds of millions buying foreclosed homes in depressed markets from banks wanting to divest their real estate inventory. Their strategy is to purchase properties at bargain prices, make needed improvements, rent the properties, and then sell when the market improves, potentially to current renters. The term “Rent to Own” or “REO” encompasses this latter group who investors ultimately hope will purchase the homes they rent.

Industry experts believe the resulting influx of capital will help stabilize distressed communities. A report by the Urban Institute cites clear evidence that foreclosures affect property values, result in abandoned and neglected homes, mean less real estate tax dollars for the community, and invite crime into neighborhoods. Filling these homes can alleviate these issues.
Single-family home renters tend to be older than apartment renters, have children, and higher incomes. Many have owned homes, but lost them to foreclosure. Renting from a single family home (SFH) investor can help consumers re-build their credit or improve their existing credit score. Many companies, such as Waypoint, provide their renters with tools to improve their financial literacy and help put them on the path to home ownership.

Managing properties across wide geographic areas, however, poses new challenges for these SFH investors. “Management strategies in the multifamily industry have been in place and have evolved for 30 years,” says Richard Levitan, Rent Assurance president. “One company’s single-family inventory can equal 2,000 separate units across many markets. While multifamily rental firms are generally on-site where a manager can easily knock on the door of a delinquent tenant, SFH investors, or the management firms they hire, don’t have the same ability. And, because investors such as REITS need to demonstrate profitability to current and potential investors, having consistent and predictable rent payments is of utmost importance.”

One solution is to automate and centralize the single-family rent payment process. With the Neighborhood Pay Services (NPS) Rent Assurance Program, for example, renters set up a direct deposit from their employer’s payroll service so that a portion of their next month’s rent is automatically deposited into their Rent Assurance account managed by NPS every payday before funds become discretionary. Not only does this assure on time rent payments, it also provides a potential delinquency alert system, as property owners will have an early notification from NPS of a resident’s job loss.

“REITs and other multifamily investors will be looking for more capital to continue buying inventory. Collateralizing their leases and rent payments will be one strategy used to raise additional capital, and we believe Rent Assurance can help show better, consistent rent payment performance, and thus lower the cost of obtaining capital,” says Levitan.

How long investors will hold on to the single-family properties remains to be seen. But, for now, rentals in this segment present a slew of opportunities.

Single-Family Home Rentals: The New Frontier

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