This article was posted on Thursday, Aug 01, 2013

There’s only one reason why the housing crash wasn’t any worse than it was on the nation’s homeowners, mortgage lenders and local communities – and it wasn’t the federal government. Private investors have accounted for 15 to 25 percent of home sales since 2008—most of them foreclosures that are poisonous to local home values. In market after market, investors stepped in to stop real estate markets that were in a death spiral and created a price bottom that made recovery possible.

Most investors focused on turning these properties into single family rentals, often to house foreclosure victims. Today, some 52 percent of all rental units in the U.S. are single family homes, housing 27 percent of all renters. Most, 3.6 million, were originally built for owner occupancy but passed into the ranks of rentals when their owners lost them through foreclosure.

With 1.2 million more foreclosures in the processing pipeline and well-funded hedge funds and REITs now spending billions to buy and manage single family rentals, many wonder whether there will be a market for so many rented houses, which have experienced extraordinary growth. From the peak of the housing boom in 2005 to 2010, single family rentals grew at a rate of 21 percent versus just a 4 percent increase in total housing units.

Is the single family rental boom just another real estate bubble? Or are we witnessing the expansion of a new housing option, one that has existed for centuries that’s perfect for a generation burned by the housing bust and wanting the space, privacy, security and sense of community for their children that they grew up with? A good place to find the answer is to listen to the expectations and dreams of families already living in single family rentals.

We contracted with ORC International, Opinion Research Corporation, one of the most respected Caravan survey companies in the world, to look at both apartment dwellers and single family renters to learn more about them. What transpired was eventually published as the National Survey of Renters.

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Some of the findings were expected. Single-family renters tend to place a higher value on safety, cleanliness and friendliness of the area and schools than on access to parks, recreation and community centers. They also tend to be more affluent than multi-family renters and are more apt to have children. In addition, the data showed that single family home renters tend to be a little older. There were also some surprises:

  • Some 52 percent of all renters, and 60 percent of single family renters, plan on becoming homeowners in the next five years. Clearly, single family rentals are serving as incubators and stepping stones to homeownership for potential buyers who need time to put their finances together and build their credit.
  • However, 26 percent of single family renters have no plans to move at all. For them, a single family rental is the ideal destination; the amenities of single home living without the risk, cost or obligations.
  • Finally, 84 percent of single family renters gave their property management company or landlord good to exceptional ratings, significantly higher than apartment dwellers. Only five (5) percent rated their property management as poor.

There was one final surprise. We asked those renters who did not plan to buy a home in the next five years if access to financing was a reason, and only 29 percent said it was due to difficulties obtaining a loan. More mentioned that they just didn’t want to become owners or that they enjoyed renting.

The housing economy is just beginning to recover from a multi-year nightmare that would have been much worse if the single family rentals that are filled with tenants today were still on the market as foreclosures, infecting home values for blocks. The investors who took a gamble, bought them, spent an average of $11,000 on rehabbing them, and now provide housing for others, have reinvented a traditional housing option and adapted it to the needs of a young generation seeking an alternative to apartment living and owner-occupancy. If it works, as our research suggests it will, the closing chapter on the foreclosure crisis will be a happy one.

Chris Clothier is an active real estate investor and entrepreneur with executive positions in Memphis Invest, GP, Dallas Invest, GP and Premier Property Management Group.


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