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Institutional investors moving into the single-family home rental market rely on comprehensive data to manage a range of challenges

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LightBox Insights
March 14, 2023 4 mins

Corporate ownership of single-family rental homes, which make up about a third of U.S. rental housing stock, has risen significantly since the 2008 financial crisis, when firms began buying foreclosed properties. Large institutional investors are acquiring blocks of existing single-family rental homes or land on which to build them, creating income-generating real estate portfolios, which many financial firms see as a long-term strategy.  

  1. Institutional investors are increasingly focusing on the single-family-home rental market, though small and midsize firms will continue to hold onto their niches 
  1. This trend is currently supported by a housing shortage that has sparked greater demand for affordable homes—people who can’t buy are looking to rent 
  1. Large developers need comprehensive data to identify viable plots of land for building, or blocs of existing homes that can be acquired and/or repurposed 

Within the commercial real estate investor and developer space, single family homes for rent have become a major focus among large institutional investors. Builders such as Lennar, Pulte, and Toll Brothers have long specialized in single-family homes, selling directly to consumers. Many of these builders are establishing build-to-rent projects because of this growing segment’s investment potential. Additionally, financial firms such as Blackstone and Brookfield—among the largest institutional capital providers in real estate—have identified this as a growing sector in which they hope to invest a meaningful amount of capital, as they have done in other areas of commercial real estate. Investors are acquiring tracts of land or existing SFHs and contracting third parties to manage the properties, generating income and meaningful and stabilized return on investment. Investment management firms believe this strategy has major potential.  

Traditionally, single-family rentals have not been widely seen as investment vehicles. The few firms who do specialize in SFR are small and midsize, though one large company—American Homes for Rent (AHR) —has specialized in this area for a long time and is now seeing its bottom-line grow. AHR launched a plan to build individual homes that it owns, operates, and rents. Other big firms are getting into the space amid a general housing supply shortage and a growing number of people who can’t afford to buy homes, and thus need to rent.  

Even if the shortage of homes for sale to individuals’ eases, there will always be a need for rental housing, which in turn can generate stabilized and strong returns for large institutional capital players that might not have previously considered rentals a big enough sector to invest in.  

Comprehensive, connected data: The foundation for successful site selection and planning 

SFR is becoming a stabilized asset class. We believe there is a long-term opportunity for investment growth. LightBox and LandVision—a mapping software, analysis, and management solution for industry and government—offer crucial tools for companies getting into this sector. Because our data products are based on a comprehensive national parcel fabric, LightBox has data for just about any location in the U.S. 

Single-family home developers use SmartFabric to identify land—from a few acres to hundreds of acres—upon which they can build homes. If the location is right, they can use LightBox and third-party data to learn about ownership, what utilities are available, regional demographics, zoning challenges, other builders are in the area, and whether companies are growing their presence in the area, creating the need for employee housing, etc.  

Our comprehensive data allows real estate firms to operate smoothly across regions and divisions and develop sound business hypotheses for proposed developments. For example, a real estate firm might be interested in 10 or 15 parcels in a given market. We can show you which are already zoned for low or medium density residential, provide a link to the jurisdiction’s website, and help you compare how many parcels in another city are similarly zoned. This kind of market analysis helps firms building rental homes fully understand the development possibilities in any given area.  

Any property transaction requires due diligence to determine which uses are allowed. Our zoning overlay provides a basic look at zoning issues, saving you the trouble of going to a different platform or chasing down information at a planning department. It tells you what’s around a parcel and in the general area and looks at the broader footprint of a county to help you see what the planning department expects. Is it going to become an industrial center? Is it going to become a commercial center? Is residential development expanding in this region? 

Large investors moving into the single-family-home rental market need answers to numerous questions: Can they turn a plot of 500 homes into an investment that can be incorporated into a fund? How much capital do they need? What are the market conditions that might affect this asset class, which is different from industrial and retail? How do they compete in an individual market and maximize their returns? How can smaller players analyze and select locations like a big shop? How can they maximize resources and operate successfully? What are the best opportunities for large firms, small firms, and those in between?  

LightBox can provide answers, insight, and support to investors and builders when they are deciding on their next move.  

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