July 17, 2018

Entera on Curbed: Single-family rental units have never been easier to buy

July 17, 2018
Entera on Curbed: Single-family rental units have never been easier to buy

This article by Jeff Andrews originally appeared in Curbed

Roofstock CEO Gary Beasley was browsing through his company’s website while on a flight to New York when his neighbor leaned over and asked what he was looking at. Beasley explained that Roofstock is an online investment platform for buying and selling single-family rental properties.

After getting an impromptu demo, Beasley’s neighbor registered on the site and took a rental unit off the market before their plane even landed. Flight attendants brought them champagne to celebrate the deal.

“He was blown away,” Beasley said of his neighbor.

This in-flight sale of a rental home highlights the speed and ease with which single-family rental (SFR) homes can exchange hands now. New online SFR platforms allow investors to trade homes and collect rent as easily as if they were trading stocks and collecting dividends on Etrade, as the platforms help investors not only buy the property, but finance, lease, and manage it as well.

“In order to do this back in the day, you really had to buckle up your boots and do a lot of heavy lifting,” said Rick Palacios, director of research at John Burns Real Estate Consulting. “Now, anybody with some money can do it through these platforms. The convenience and the ease of use is just light years ahead of what it was a decade ago.”

Roofstock is just one of many SFR investment platforms that have sprung up since the housing bust in 2008. Aside from ease and convenience, these platforms allow investors to buy and own rental homes in multiple parts of the country at once, whereas before it was almost certain that investors would buy in the city in which they live. Even today, about 70 percent of SFR properties are owned by someone whose primary residence is within 10 miles of the rental property, according to RentRange.

The platforms also give investors the same data and tools that big institutional SFR operators like Invitation Homes used to buy single-family homes out of foreclosure in bulk after the financial crisis. OwnAmerica, an SFR listings service similar to Roofstock, lures in potential sellers by offering this data for free if they register their SFR unit on the site. The data includes the property’s monthly rent, annual taxes, and projected price appreciation, in addition to information on neighborhood quality and schools.

“All the stuff you see on the [OwnAmerica] site, all those analytics, those are institutional quality analytics,” said OwnAmerica founder Greg Rand. “We serve all the big Wall Street players, and so we repackage what we do for everybody else.”

In many ways, the SFR investment platforms are a byproduct of Invitation Homes and other Wall Street landlords, not only because the platforms are providing their tools to “mom and pop” investors, but in some cases the platforms were founded by former executives of SFR operators. Beasley, for example, was the CEO of Colony Starwood Homes, which merged with Invitation Homes in 2017.

Institutional SFR companies own somewhere around 250,000 SFR properties, a mere fraction of the 17 million SFR properties in the United States. Most SFR landlords are “mom and pop” investors who own only one house; in a lot of cases, these people become landlords when they buy a new house and decide to rent out their old house.

Entera on Curbed: Single-family rental units have never been easier to buy

OwnAmerica and Roofstock work like a listing service for SFR properties the same way Zillow is a listings service for owner-occupied housing. The companies don’t own the houses, but charge sellers a listings fee and advertise the home to potential buyers.

After a customer buys a home on the platform, the company will help the buyer secure a mortgage if needed, and also find a property management company to handle leasing, maintenance, and rent collection, although buyers are free to facilitate these services on their own.

Other companies in the space have a slightly different model. HomeUnion actually buys the home, renovates it, leases a tenant, and then sells it to an investor on its platform as a property that’s producing rent the day the investor buys it. It also has a “fix-and-flip” fund that raises capital with which the company can buy and renovate those homes.

Since the financial crisis, institutional capital from hedge funds, investment banks, and accredited investors has flowed into home flipping, whereas prior to the collapse, it was a mostly fragmented, local, and informal business. HomeUnion’s business model blends both fix-and-flip lending and SFR investment.

“One side feeds the other,” said HomeUnion founder Don Ganguly. “If you’re not up for owning those [SFR homes] directly you can go to the [fix-and-flip] fund and put in 10 grand minimum. Then we buy it, renovate it, and turn around and sell it to investors on the other side of the platform as a ready [to rent] property.”

Investability Solutions has a similar model, but after a few years of serving “mom and pop” investors, the company decided to target more middle market rental companies that own 1,000 or more properties and institutional SFR operators. The company buys a property, renovates it, puts a tenant in it, and then sells it to a company like Invitation Homes or American Homes 4 Rent. And they do this at scale to feed the rental companies, which are hungry for new inventory.

There’s also a company that bills itself as the “Kayak for SFR properties.” Entera, which got its start helping institutional SFR companies find property, pools SFR property listings from Roofstock, OwnAmerica, iBuyer platforms, multiple listings services, and other traditional real estate listings services. The company claims it gives investors more choice than the companies with proprietary listings can offer, and it can also help buyers secure a mortgage and find a property manager.

The rush of companies looking to assist mom and pop investors with SFR properties underscores what’s become a brave new world for the single-family rental industry since the housing bust in 2008. Technology and data have given companies a way to have a footprint in every market in America.

And the demand for SFR properties has never been stronger, as there appears to be a mad dash to acquire units from mom and pop investors and institutional SFR operators alike. With home prices in most markets having fully recovered from the bust in 2008, companies like Invitation Homes are getting cozy with home builders in effort to get supply straight from the source. There’s even been entire single-family neighborhoods built solely for a company to rent it out.

“I think that’s one of the primary reasons why we’re bullish on the space from a growth perspective,” Palacios said. “We have so much confidence that it will continue to gain market share.