Tony Anderson
Building professionally managed communities of single-family houses for rent, with their own leasing and maintenance office, is the hottest trend in new house construction.
“Build-to-rent” has attracted homebuilders, from the biggest on down. And it has attracted the biggest single-family landlords that, instead of buying houses scattered all over the place to be rented out, are buying entire build-to-rent communities from homebuilders; and some also have their own build-to-rent construction programs where they buy the land and build these communities and lease them out.
Having entire communities of new build-to-rent houses with their own leasing and maintenance offices is more efficient for the landlord than older houses with more maintenance requirements scattered all over the place.
And the biggest landlords have begun selling thousands of older houses scattered all over the place, given their higher management costs and the sky-high prices they bring in this overpriced market.
These are the same landlords - American Homes 4 Rent and Invitation Homes - that were formed in 2012 at the end of the Housing Bust to buy these houses for cents on the dollar out of foreclosure. They know what they’re doing.
For example…
American Homes 4 Rent (AMH) began adding build-to-rent single-family developments in 2017 and is now largely “focused,” as it said, on adding build-to-rent single-family properties through its own homebuilding division, AMH Development Program, for communities of rentals. In addition, it is buying some build-to-rent houses from third-party homebuilders. It’s no longer buying individual existing homes, but has started selling them – more in a moment.
In 2023, it built rental developments with 2,317 newly constructed single-family houses: 1,838 houses for its own operations, and 479 houses for its unconsolidated joint ventures. It only purchased 47 houses from third-party homebuilders.
“We typically incur costs between $250,000 and $450,000 to acquire and develop land and build a rental home,” American Homes 4 Rent said in its annual report.
Invitation Homes (INVH) acquired 1,789 single-family houses from homebuilders in 2023, at an average estimated cost basis of $390,000. Of those houses, 760 are scheduled to be delivered in 2024, the remainder in future years. These houses are in communities of rentals.
These two landlords sold over 3,000 older houses combined in 2023, having become big sellers of single-family houses they’d bought years ago here and there.
“Our properties held for sale were identified based on submarket analysis, as well as individual property-level operational review,” American Homes 4 Rent said in its annual report.
In 2023 it sold 1,546 houses and held another 862 houses for sale. “We will continue to evaluate our properties for potential disposition going forward as a normal course of business,” it said.
Invitation Homes sold 1,489 houses in 2023 for $547 million, for an average sales price of $367,000.
Combined, American Homes 4 Rent and Invitation Homes sold 3,035 older single-family houses into this overpriced housing market while they can still get top dollars, even as they expand their stock of build-to-rent houses.
Homebuilders are chasing after single-family build-to-rent. D.R. Horton (DHI) reported that as of March 31, it carried $3.1 billion in investments in rental properties, up from $2.7 billion six months earlier. During the 12-month period through March 31, it sold 6,248 single-family build-to-rent houses, about 7% of its total unit sales (in addition, it also built and sold a bunch of multifamily units).
Build-to-rent single-family houses in communities with 50-plus rentals
Last year, 27,495 build-to-rent single-family houses were completed in professionally managed communities with at least 50 single-family rental houses in markets covered by Yardi Matrix research, according to an analysis by RentCafé, based on data from Yardi Matrix. Up by 75% from 2022!
It does not include single-family rentals that are not located in build-to-rent communities or in smaller build-to-rent developments.
And more supply is coming: Another 45,400 build-to-rent single-family houses were under construction in professionally managed communities of 50-plus single-family rental houses.
This represents new supply of single-family houses on the rental market, which is great news for people not willing to play the crazy games of the grossly overpriced purchase market, even as the biggest landlords have been selling older houses into this market to cash in on the crazy prices and focus on more efficient-to-manage build-to-rent communities.
Renting a house can be substantially cheaper on a monthly-payment basis than buying an equivalent house these days, after the crazy price spikes in recent years and the 7%-plus mortgage rates now, and this arbitrage may be a good option for many people, which is why there’s strong demand for nice rental houses, which is why there is this sudden surge of supply.
Sales of all single-family houses have been purring along at near-pre-pandemic levels. Prices of new houses have come down, and homebuilders are buying down mortgage rates to stimulate demand, in a market where sales of existing houses have plunged.
There is plenty of supply of new single-family houses, with homebuilders’ inventory for sale rising to 465,000 houses, the highest since August-October 2022, and beyond that the highest since 2008. This amounts to 7 months of supply. Plenty of inventory for aspiring homeowners.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
