I pay attention to the market, especially Single Family Rental Investment Funds that buy homes to hold as long term rentals. Its a relatively small market to keep tabs on. In my world, I track about 340 firms, and in an active market, 40-50 of these types of firms are actively searching for SFR deals. When I say “actively” I mean that they have hired acquisition personnel to find and acquire inventory. Over the last year, both the number of firms in the market investing in SFR has decreased and the number of firms that have dedicated staff tasked with sourcing SFR opportunities has decreased. So that relatively small market that I mentioned is now like 250 firms, out of which 15-20 are actively perusing deals.
So when Strata gets calls from acquisition pros across a dozen different firms and they are all asking for the same thing, I take note. This month every conversation we have had about the demand for SFR has included the appetite of investors for New Construction Homes. The thinking is that a new home is preferable to an older home that needs some level of rehab to make rent ready and even preferred over homes with tenants already in place. Since they don’t need any updating and rents will be higher. The time and cost to do those rehabs vs the rent that can be achieved just makes a new construction home, if bought at the right price and Cap Rate a no brainer.
The question that most investment funds are asking themselves is this:
If builders are paying 5-7% in marketing and disposition costs, plus a rate buy down which is costing them another 3-5% of their home sales price, is it possible they would rather sell to an investor at a 12% -15% discount from retail values, if they can buy multiple homes in one go?
The driving force behind the demand is that SFR has performed exceedingly well in a time of higher interest rates, high inflation and rising costs of living. Returns have kept up and investment capital is there, albeit it has a harder time finding assets to invest in given stubbornly high MLS resale home prices (a function of owners not giving up their historically low interest rates unless absolutely necessary). So the capital has aimed its sites on New Construction Homes. Betting on providing a solution to home builders that want to move inventory at prices not too far removed from what they would get from retail sales, net of disposition and hold costs.
So the demand is there and investors are making offers. If you’re a builder and looking to move properties in bulk, the link below if for you. Strata can predict what prices will be offered and how much of a discount would necessary to strike a deal. It may be a useful exercise at the very least, just to put some numbers to what an investor sale in bulk would look like vs selling to retail home buyers. Food for thought:)
https://webforms.pipedrive.com/f/2XiKnykDLBdW9UNPBnrEeSjXnOxQ4fNS4ZNeXxu1cz57ENlQIXIOWeiLvoJrt6bnR