Just because a property is not up for sale does not mean that the owner is not ready to sell, at the right price. Off-market deals can be harder to come by with an all-time low supply, but the upside potential is pushing investors to seek more than ever, turning to technology to fill knowledge gaps. With the right tools and enough money, finding potential sellers is as easy as a click. If it’s on a map, it’s on the market.
“We are seeing an increase in off-market sales, there’s no question about it,” said Kevin Mattice, product manager at real estate data company Cherre. “I think the biggest niche we’re seeing emerging is primarily on the single-family residential side of the world, there’s a huge emergence of funds and REITs that are focused on buying and selling SFR in bulk.”
Single-family rentals (or SFR) are experiencing strong investor growth. Long regarded as a labor-intensive company with lower than expected returns, new management processes and new investment methods make SFR a flagship product. The boutique asset class is reaching unprecedented scale as deep-sea funds pour into the market. Already worth $ 3.4 trillion, the SFR will soon eclipse the multi-family market in size. The rapid growth of the sector is directly related to the importance of large investors who seek out-of-market transactions. Using technology to find and approach potential buyers is proving to be extremely cost effective. Single-family rental REITs are among the best performing investments, rising 40% this year alone and seeing double-digit rental growth as occupancy rates approach record highs.
Economies of scale
It takes time to convince an owner who does not put their property up for sale. Piles of cash aid. The funds and REITs that are swelling the SFR market are using technology to find where they want to be, approaching owners with cash in hand with the promise to cut through the sales and marketing process and go straight to instant gratification. Platforms like Cherre bypass off-market transactions by synthesizing the history, ownership, and ownership valuation of virtually every property in the United States. Investment strategies that used to take months to research and analyze can now be completed with a few clicks. This is great for investors, but housing advocates fear that giving too much leverage to large investors in the single-family home market will exacerbate the country’s relentless housing problems.
The lack of affordable housing is a problem that plagues virtually every major American city. In recent months, construction of new single-family homes has slowed. House prices are on the rise across the country, increasing by more than 20% in some areas. The median price of a single-family home is approaching half a million dollars. With many coupes in the property, more and more people are turning to rental. This allows investors to have liquidity to carve out a place in the housing markets. Critics say investors willing to pay platforms for exclusive real estate data can approach potential sellers and offer immediate cash in a way your typical home-hunting family can’t. As funds and investors strategize at scale, they vacuum up viable owner-occupied homes and turn them into money generators.
Renting a single-family home is an affordable option for people who are worried about a down payment. Other advantages of renting include not having to worry about maintenance and great flexibility. The only downside is losing a home’s appreciation value. Home equity is a key factor in building family wealth.
Given that serious investor interest in this asset class is still relatively new and growing rapidly, it is still too early to tell how much the residential markets will be affected. The size of the US single-family market cannot be overstated. There are nearly 85 million single family homes in the United States holding tens of billions of dollars in value. No matter how hot the investments are, it’s like trying to boil the ocean. Investors and large asset holders control about 55% of all apartments in the United States, but only 2.5% of single-family homes.
The value trap
We are already seeing original neighborhoods being altered by the increasing prevalence of SFR, but piecing these pockets together into a cohesive understanding is a challenge even for the best economists and analysts. This makes real estate data platforms even more important. Monitoring SFR’s impact on real estate markets relies on the same tools and technologies that investors use to place bets.
“It will be interesting to see how these investments affect home values, how they affect supply,” Mattice said. “Are house values in these areas increasing because decisions are made programmatically?” Will this result in the offer? Will more houses be built? Lots of opportunities to watch what’s going on. We need to monitor the data.
While many critics fear that US real estate wealth and equity could be transferred to corporations and investors, single-family rentals likely have a role to play in alleviating the housing shortage. Advocates say more supply is the only way to balance the scales. Single-family rental investors are rushing to provide this offer. Single-family rental construction home starts are up 30% from 2019. Already accounting for 6% of all homes under construction, experts expect that number to double over the next decade. which will make it the fastest growing housing sector in the United States. States. The greater the supply of housing, the problem is affordability. The prices of single-family homes for sale have increased an average of 3.6% over the past 20 years, while median household income has increased an average of 0.5% over the same period, forcing many people to to become owners or forcing them to rent single-family homes, according to the housing price index of the Federal Housing Finance Agency (FHFA).
The impact of off-market transactions on home prices is unclear. Typically, off-market deals offer potential sellers less than their home’s value, but the full price is paid in cash. Investors paid about 30% less than consumers for single-family homes in 2021, according to ATTOM home sales data. Housing advocates have a misconception that investors pay too much when most deals do the opposite. Individually, offers may be greatly reduced, but house prices as a whole are rising rapidly.
“Historically, investors have always accounted for between ten and fifteen percent of residential home purchases, and our data shows that is still the case today, albeit at the higher end of that range,” said RealtyTrac executive vice president Rick Sharga. “But the data does not support the ‘Wall Street buys Main Street’ theme which has been a popular theory for about a year.”
What is clear is that technology enabling easier off-market transactions is directly fueling SFR’s rapid growth as an investment class. What used to take years now takes days, allowing buyers to reach potential sellers with just a few clicks. SFR’s impact on property markets will be watched closely, but it’s safe to say the asset class is here to stay.