On today’s show we’re talking about one of the hottest new trends in rental product. The single family home is part of the American dream. People want a place they can call home. But home ownership isn’t necessarily a perfect fit for everyone.
Home prices for single family homes have risen to the point where owning is 40% more expensive on a monthly basis compared with renting. In the late 1990’s, the premium for ownership was only 20% compared with renting.
Regardless of affordability, single family homes in a neighborhood are more desirable for young families compared with a multi-family apartment complex. An apartment complex can be a better fit for some people who prefer the lifestyle and amenities that only a rental complex can provide. If your apartment complex has a half million dollar swimming pool, recreation center and fitness room, you’re going to have a hard time replicating that experience in a single family home.
Multi-family apartments are ideal from an investment standpoint. Property management is easily accomplished. Single family homes are designed to be unique, to express the individuality of the owner. Since no two homes are alike in an ideal world, the cost of maintaining single family homes will inherently be higher than apartments that can be standardized. None of the interior finishes are likely to be the same. The flooring will be different, paint colors, room sizes, appliances. So much will be different.
But if you designed a community of single family homes or townhouses for rent, you might be able to marry the best of both worlds. You might deliver the end user experience of a single family home, combined with the management efficiency of the apartment complex.
Not surprisingly, as investors have discovered the benefits of this product. Rental homes are more expensive to rent than apartments. As a result, you tend to attract a higher quality of tenant that can afford a more expensive product. A single family home will rent for several hundred dollars more per month than an apartment. When it comes to quality of rental product, you are also selecting the quality of your tenant. The poorest quality of tenant tends not to rent a more expensive product.
The purpose built rental community has become a much more desirable investment for both investors and lenders.
There are a number of new loan products that are aimed specifically at the single family home rental community. The tenants for these homes are typically young families with stable employment.
Institutional investors are snapping up stabilized portfolios of single family home communities at relatively high prices.
It’s no surprise then that we have started to design more of these communities as part of our own portfolio of assets.