Big Money is Looking for Commodity Suburban Houses

Commodity detached suburban houses

REITS and Asset Management outfits are assembling capital to invest in suburban single family (SFR) rental portfolios.

This is not a surprise, since rents for SFR properties went up 11% in June.

Let's keep an eye on this. When Big Money make big mistakes, the impacts are often felt by other people and by neighborhoods far away from the offices of the REIT managers compensated base upon the amount of capital under management. Keep in mind that the REITS and private equity shops who bought loads of houses out of foreclosure in 2009-2012 never figured out to to do single family hose property management at scale. They made money on the arbitrage between what they paid during the recession and the eventual sale prices in 2018-2020. It was not a rental portfolio play it was speculation on distressed assets they hung onto until the prices recovered.

I think the current industry segment that is building detached suburban houses to be rented is the same song, different verse. They are speculating on houses they build now in when they sell them in 5-7 years. The rental income covers their debt service and operating expenses during their holding period. They are speculating on commodity housing that will be more expensive in 5-7 years. That is a pretty safe bet, given the low inventories, high demand, shortages of skilled construction labor, and the unlikely prospect of anything serious getting done with immigration reform.

The incentives for a single family rental REIT are in the wrong places. This is a particular problem in a time when housing inventories across all types and tenure are going to be really short of demand. If you get wind of an outfit like this starting to acquire houses or commission construction of houses I recommend that you run don't walk to build/rebuild in places they will not go.

https://therealdeal.com/2021/07/19/tricon-residential-lines-up-5b-single-family-rental-venture/