Investors consistently scoring with single-family rentals

Risk-adjusted annual return on investments average 8%: report

The properties reportedly offer investors an average risk-adjusted annual return of about 8 percent. (iStock)
The properties reportedly offer investors an average risk-adjusted annual return of about 8 percent. (iStock)

Single-family homes built for rent are proving to be the strongest market angle for investors, delivering strong returns based on sustained demand, short supply and high prices.

Securities advisory Green Street tracks investment returns on 18 different property sectors. Data reported by the Wall Street Journal show the expected risk-adjusted return on built-to-rent investments is 8 percent on average, higher than the weighted average return of 6.1 percent across all sectors.

Money and construction have poured into the property sector in recent months. Brad Hunter of Hunter Housing Economics claims almost 100,000 built-to-rent homes have kicked off construction this year alone, according to the Journal. Nearly $30 billion in debt and equity have entered the sector this year.

Single-family homes constructed to be rentals started booming in 2020, when the number of homes built soared 30 percent year-over-year, the New York Times reported. The fastest-growing housing sector in the country, built-to-rent homes make up 6 percent of all homes being constructed in the United States, and according to the Times, that number could double in the next decade.

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The industry’s big players are getting in on the action too. The Journal reports American Homes 4 Rent built 1,600 homes last year and expects to deliver at least 2,000 more this year.

Americans are turning to rentals as they’re increasingly priced out of homeownership. Single-family rentals offer a flexible solution without requiring down payments or expensive closing costs, while landlords take care of maintenance and repairs.

One drawback for renters is that they don’t often match the savings that homeowners build via equity in their properties; for many, their home becomes their most valuable asset.

Affordable rent is also becoming harder to come by. Through the end of July, asking rents on single-family rentals had soared nearly 13 percent year-to-date, the highest increase in five years.

As the built-to-rent boom continues, some see the pace of growth as unsustainable amid rising land prices and supply nearing a potential glut, according to the Journal.

[WSJ] — Holden Walter-Warner