Trulia reports that rents from June to June 2016 have fallen slightly in a pull back from the steady rising rents of the past six years in the top 25 metro markets. Affordable rental listings are in the steep decline so rentals below $1200 are in such sketchy areas to be a “no fly zone” in urban areas. Since large institutions started buying single family homes, initially REO properties, the technical term for Real Estate Owned (by the Bank following foreclosure), the profitability in cash flow and the total return on investment (ROI) including asset appreciation, has delivered returns in the high teens. In a US stock market near its peak with international markets trading erratically and bond returns puny, this asset class has out performed every other alternative investment choice.
From the gathering of the industry organized by IMN in May, the #1 question is disposal. From a mix of large and mid-sized institutions, a few consolidators will aggregate the portfolios to form the publicly traded REITS on the scale of the REITs that own much of the multi-family properties. Until now, but for a few mergers of funds, assets have been purchased at the courthouse steps at auction, online at auction or on the MLS. The challenge for the Sellers in this scenario is the Buyers are yield focused so the assets trade on CapRate rather than on the increase in the asset values (Home Price Appreciation). Ideally you want to find a Buyer who will pay for both yield and asset value. If this year brings more consolidation in asset portfolios ownership then the total market share of rental homes, now about 1% held by institutions will not increase. After consolidation with the continuity of securitization of debt on these assets reducing the cost of Capital to under 3% (LIBOR-based) you have a mature industry formed in a predictable manner when market share could then increase again.