The total value of the U.S. housing market was approximately $35 trillion, as of June, 2016.* This makes it the world’s largest asset class, with a value larger than the combined value of the U.S. equity markets plus the value of all marketable U.S. Treasury securities. However, in spite of the scale of the U.S. housing market, this sector has not historically been a component of most individual investment portfolios. The primary reason for this is that individual investors have had little access to the institutional scale necessary to execute investments in the single-family housing market. In recent years, that has changed. Single-family rental home investment opportunities now exist as a compelling investment opportunity for retail investors who wish to allocate into the single largest asset class in the world.
What drove this opportunity? As a result of the U.S. housing market collapse that began in late 2006, millions of individually owned homes went into foreclosure. In the carnage of mass foreclosure, institutional investors saw an opportunity to enter an asset class at deep discounts to perceived value, and ultimately created a new investment sector that has thrived. As of August, 2017, the top five institutional investors in the single family housing rental market have infused over $23 billion into investments.* Their investment capital has changed how Americans rent. 39% of renters now live in single family homes, according to U.S. Census Bureau. The number of single family homes available for rent increased by 32% between 2006 and 2013, according to CoreLogic. This is a positive trend for renters because they have more options in rental supply, and it’s also potentially great for investors who wish to participate in feeding the demand for more rental housing supply.
The bottom line is this: A trend has developed in the market, more families have turned to renting over purchasing. In fact, the percentage of American homeowners is at its lowest in 50 years.* There are a myriad of reasons for this, such as tightening of credit from lenders, rising home prices, lingering fears from the housing crash, larger amounts of student debt, a more transient millennial population, and more rental choices, to name a few…but this decline in home ownership percentage is not necessarily a bad thing: On the contrary, renters have more options and single-family rental home investors have an opportunity to enter a sector that may be in the early stage of its development.
Until recently, this growing asset class has been
dominated by either very small local investors or very large institutional capital.
That is changing. Until recently, retail investors were limited in their direct
access to high quality non-publicly traded single-family home portfolios
because of high minimum investments, accreditation standards, and unfriendly
tax treatment. Fortunately, individual investors who wish to participate in
this enormous and growing sector can now do so through private offerings
sponsored experienced managers.
As an asset class, the single-family rental
housing market can offer portfolio diversification (relative to conventional
equity and fixed income securities), competitive income, and potentially high
total returns…all of which may be impactful on the overall performance of an
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