A spike in rental demand across the Sunbelt region has led to an influx of investors looking to purchase and build single-family homes over the past year.
High home prices, low inventory, and rising rates have generated a surge in rental demand everywhere, but housing competition remains especially fierce in the Sunbelt as recent grads, remote workers, and retirees from all around the country continue to migrate south. This massive uptick in housing demand is pushing more and more people towards rental properties as the only affordable option.
With homeownership out of reach for many, investors have noticed the increase in rental demand. Wall Street-backed investors continue to snatch up existing real estate, and they’re also making significant investments in the development of new single-family rentals. While we’re seeing this occur all over the country, the majority of this activity is taking place across the Sunbelt.
Just last summer, real estate investment firm Fundrise added 146 rental homes in Jacksonville, Florida to its portfolio of 467 single-family rental homes across Florida, South Carolina, Arizona, and Nevada. This $55.9 million purchase was supported by a Goldman Sachs-sponsored fund and about 90% of the rental homes were already occupied.
Since single-family home values in Jacksonville have increased by 25% year over year, maintaining full occupancy of these homes most likely won’t be a problem, and the properties will likely drive consistent returns for investors for quite some time.
Investing in single-family rental units in a hot market like Florida can really pay off; however, growth potential is limited by the inventory challenges of today’s market. Listings are still a fraction of what they were a few years ago and new home development has stalled across the country. These factors have given new life to a new real estate development opportunity: built-to-rent single-family homes.
Orlando was actually one of the country’s early adopters of the built-to-rent community concept in the 1980s, however, the majority of the area’s built-to-rent units were developed in the last 10 years. Based on current construction trends, the Orlando area is on pace to add more than 2,000 additional built-to-rent units and 11 new built-to-rent communities in the next two years. We’re also seeing similar development trends emerge in Tampa, Phoenix, and Las Vegas.
The majority of these built-to-rent homes resemble the typical American dream. They range from three to five bedrooms and start around $2,100 per month. Many of them come with nice-sized fenced-in yards, attached garages, and plenty of space, which make them highly appealing for those who spend a lot of time at home.
Built-to-rent suburbs offer an affordable alternative to traditional homeownership. They meet the needs of Millennials who are priced out of the market due to ongoing affordability challenges. They also help to serve the needs of many recent college grads who need something just a bit bigger than an apartment but aren’t yet ready to purchase a home. They’re also great for empty nesters who recently sold their homes and don’t want to worry about long-term maintenance.
Many development firms who specialize in built-to-rent housing retain the properties and take on the role of property manager as well. They also offer companies the opportunity to gain brand exposure by incorporating their own identity into the community.
Until the real estate market is able to re-calibrate, rental demand in the Sunbelt will continue to remain higher than in the rest of the country. Through single-family home acquisition and built-to-rent development, many investors and developers are ready to take advantage.