The largest investors in single-family rentals have bought few properties so far in 2017.
“We don’t see them deploying a lot of capital for acquisitions,” says Daren Blomquist, senior vice president for ATTOM Data Solutions. “The big guys have kind of settled in.”
Instead, mid-sized companies have become the leading buyers of single-family houses for rent. As home prices rise, these smaller companies have been willing to buy properties in secondary and tertiary markets. They have even entered some prime markets, in spite of the fact that rising home prices are cutting into investment yields there.
Memphis dominated by smaller institutional buyers
In Memphis, Tenn., 8.6 percent of all homes and condominiums bought and sold so far in 2017 were purchased by institutional buyers, meaning buyers who bough at least 10 properties in the last calendar year, according to ATTOM. That makes Memphis the city where institutional investors account for the biggest share of purchases, among metro areas with at least 2,000 home sales year-to-date in 2017.
But the institutions buying in Memphis are far from national names like Invitation Homes. Instead the buyers more likely to be smaller, regional companies buying through entities like REI Nation, Memphis Cashflow or Memphis Turnkey Properties.
“We’ll buy a little over 800 houses this year in Memphis, Dallas, Houston, Oklahoma City and Little Rock,” says Chris Clothier, partner with Memphis Invest and Premiere Property Management Cos. His firm renovates and rents these houses to tenants. Once the houses are occupied, the firm sells the properties to passive investors who typically hold them while Clothier’s company continues to manage the properties.
“Memphis has become very popular with some mid-tier institutional investors, but does not have a lot of the housing stock that the big guys like to purchase,” says Blomquist.
Smaller institutional investors still buying
About 2 percent of all single-family homes and condos sold so far in 2017 were bought by institutional investors, according to ATTOM. That’s down from 3 percent in 2016. It’s also a fraction of the share of the market that institutional investors had in 2012 and 2013, when they accounted for more than 7 percent of all home purchases.
“That said, the cumulative number of sales going to institutional investors so far in 2017 is nothing to sneeze at,” says Blomquist. These investors have already bought 27,391 houses. But these institutional buyers are now more likely to be smaller firms focusing on a region or a handful of regions.
The largest national companies make up a relatively small piece of this puzzle. For example, American Homes 4 Rent has bought a total of just 145 properties so far this year, according to ATTOM’s count of purchases by entities associated with the company. Of those, 64 were in Florida, 33 in Tennessee, 15 in South Carolina, 14 in Georgia and Ohio, four in Kentucky and one in Washington.
The company has easy access to the capital markets. It is a REIT traded on the New York Stock Exchange with a healthy stock price. It just isn’t spending that money on houses.
A closer look at these purchases shows how picky American Homes 4 Rent is being. For example, of the 33 houses that the company bought in Tennessee, 30 were in Nashville and Knoxville. The company has bought very little in Memphis.
Colony Starwood Homes has purchased 296 homes over the same period, according to ATTOM, with a similar breakdown by state, adding in Colorado and North Carolina.