Institutional landlords see new competition from an unexpected source
A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for the real estate investor, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future editions, straight to your inbox.
It’s getting harder to sell a home, as rising supply, high mortgage rates and waning consumer confidence conspire to keep potential buyers on the sidelines. Now some frustrated sellers are deciding to de-list their properties and instead offer them on the rental market.
These new rentals are coming in direct competition with institutional investors in the rental space, especially in the markets where those investors are most prevalent.
The largest investors, those with more than 50,000 homes in their portfolios, are highly concentrated geographically. Names like Invitation Homes, American Homes 4 Rent and Progress Residential each hold over a third of their assets in just six U.S. housing markets, according to an analysis by Parcl Labs: Atlanta, Phoenix, Dallas, Houston, Tampa, Florida, and Charlotte, North Carolina. These markets have seen inventory growth of well over 20% in the past year — much of it from former owner-occupants.
“When these home sellers cannot find buyers, they face three choices: delist and wait, cut price to find market clearing level, or convert to rental. The last option creates what Parcl Labs terms ‘accidental landlords’: Owners who enter the single-family rental market not by design, but by necessity,” wrote Jesus Leal Trujillo, principal data scientist at Parcl Labs.
Plan B
Garret Johnson bought his Dallas home two years ago, but recently got a new job in Houston. He thought selling his home last March would be easy.
“There weren’t many buyers, just lookers, and people were biding their time waiting for better rates. [There was] a lot of economic uncertainty in those months, March and April, that we had listed the house, so I think that played a factor as well,” Johnson said.
After a few months, Johnson decided to try putting his home up for rent. It wasn’t his ideal plan, he said, but in just the first few days, he had several offers.
The rent doesn’t fully cover his mortgage, Johnson said, but he recast his loan and put more equity in the home to lower the payments. He also changed his homeowners insurance to a landlord policy for additional savings. Johnson said he doesn’t expect to sell for several years.
“I’ve gotten to be creative, and hopefully the goal is, in the next few years, to start to turn a profit on the month-to-month basis of the rent versus mortgage,” he said.
Inventory rising
The inventory of homes for sale has already been…
Read More: Institutional landlords see new competition from an unexpected source