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Institutional Investors Slow Down Purchases of SFR Assets

In spite of rent growth in the sector, high home prices make it difficult to reach attractive yields.

The biggest single-family rental (SFR) investors are still waiting for the right opportunity to grow their businesses.

“Most of the large institutional players are sitting on the sidelines when it comes to new acquisitions,” says Daren Blomquist, vice president of market economics for, based in Irvine, Calif., an online marketplace for foreclosed and bank-owned homes.

These sector players are still buying relatively few houses to add to their portfolios. For the most part, they seem content to manage the properties they already own, even though rising rents made purchases a little more attractive over the past 12 months.

“Buying single-family homes to rent them out is a better deal for investors so far this year, than it was at the same time in 2018, as profit margins are rising in a majority of counties across the United States,” says Todd Teta, chief product officer at ATTOM Data Solutions.

Home prices keep rising

The median price of an existing single-family house reached $249,500 in February 2019, according the National Association of Realtors. That’s up from $240,800 the year before. Home prices tend to peak every summer—the most recent high point was $273,800 in June 2018.

But SFR rents are rising more quickly. The average rent on SFR homes rose faster than wages in 236 of the 432 counties analyzed by ATTOM, using data from the U.S. Department of Housing and Urban Development. Those rising rents made it a little easier to buy a house to operate as a rental property and still turn a profit in 2018. The average annual gross rental yield year-to-date in 2019 has been 8.8 percent for 2019 in the 432 counties analyzed by ATTOM. That’s up from an average of 8.7 percent in 2018.

Yet the number of single-family houses bought by institutional investors continued to shrink in 2018, according to ATTOM. Institutional investors nationwide accounted for 2.7 percent of all single-family home and condo sales in 2018, down from 3.0 percent in 2017, according to the firm.

The number of rental homes owned by large companies like Invitation Homes and American Homes 4 Rent is still relatively small and is unlikely to grow quickly. Of the roughly 16 million rental homes that are currently operated as rental properties, less than 2 percent—or about 250,000 homes—are owned by large, institutional investors.

These companies report strong occupancies rates and healthy rent growth in their quarterly reports to stock investors. "I expect the percentage of single-family rentals owned by institutions to continue to increase,” says Gary Beasley, CEO and co-founder of Roofstock. “The existing large platforms continue to grow, and new institutional players enter the space.”

However, most of the growth in the number of SFRs in the U.S. is likely to come from smaller investors. “We expect most of the single-family rental acquisitions to come through smaller to midsize investors,” says Blomquist.

The slowly expanding middle-tier investor market for SFRs is showing potential for further growth, according to Steve Guggenmos, vice president of multifamily research and modeling with Freddie Mac. “Large-scale institutional investors are a new entry into the market, but are limited to a select few firms that own approximately 1 percent of single-family rentals… Much of the SFR market is primarily driven by small investors.”

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