any millennials have put travel and life
experiences ahead of the traditional
American dream of owning their own
home, while other people of all ages
have been priced out of their local real
estate markets. The solution for many
— if they recognize they don’t have adequate savings for a downpayment or a strong enough credit rating to
obtain a home mortgage — is that they are able and willing to afford
the higher monthly payments associated with being an SFR tenant.
Even as home sales lag due to rising costs and a lack of inventory, people still want the amenities, privacy, flexibility and extra
space of a single-family home. SFRs deliver these benefits without
the financial challenges of homeownership.
Indeed, more and more commercial real estate investors are
branching out into the SFR space, which is similar in many ways to
commercial leasing and multifamily investments. Mortgage brokers
available to finance new-home construction in
master-planned communities, a growing
trend in the rental real estate market?
Large investment companies have typically
dominated the multi-family rental market.
SFRs, however, represent
greater opportunities for
individual real estate investors
and smaller companies.
By investing in new construction,
investors don’t have to factor in the rehabilitation costs associated with the purchase
of a distressed property, or take on issues they
may not have spotted during an initial inspection.
Dramatically reducing repair and maintenance costs can
result in greater profits for investors, and new-home
warranties provide protection against anything that may
go wrong. Commercial real estate investors entering this market
don’t need to find local residential contractors or manage a renovation
project, creating a shorter learning curve than with fix-and-flip
Investors can purchase multiple newly built homes in the same
community or adjacent neighborhoods, making management
efforts easier. It’s not uncommon for investors to buy 10 to 50 properties within a community and hire a property manager to oversee
them all. This is especially desirable for landlords who own properties
in areas far from their primary residence.
Single-asset and portfolio property owners should know their
exit strategies. Investors who plan to hold a property for a longer
period of time should seek out a loan with a lower interest rate
and a yield-maintenance program. If a borrower desires greater
flexibility than paying for a step-down prepayment plan, however,
brokers should ask lenders about the alternatives.
Partner with builders
Investors can choose to buy single-family rental homes when a
neighborhood is still under construction, partnering with a builder
to get their choice of properties, or they may be able to entice
builders to sell newly constructed properties.
Realizing the profit potential, some
builders are holding onto single-family
properties, hiring a management
company and diversifying their
business with rental cash
flows. A Phoenix-area
developer, for example,
has chosen this tactic
and the company’s principal notes that he likes
the multiple exit options
available, including the ability
to sell to an investor.
Investors who buy into speculative
ventures can have incredible potential for
profits. They may have the chance to market
their properties before they’re even built, creating
interest and demand within the region. In areas with
great demand, investors could fill their SFR units with
highly qualified tenants before the paint is dry.
<< Turn continued from Page 53
Michael Miller is the chief marketing officer (CMO) of 5 Arch Funding Corp. and of its parent company,
5 Arches LLC. Previously, he was CMO of Epsilon Agency Services and managing director of Catapult
Marketing. He also co-founded Hyper Marketing, which was later acquired by Epsilon.
Miller has developed global-marketing platforms for brands like JPMorgan Chase,
Union Bank, Wells Fargo, Google, Intel, General Motors Co., Home Depot,
Lennar and Tishman Speyer. Reach Miller at (212) 794-0229
Continued on Page 56 >>
“Peoplestill want theamenities,