Capitalizing on Growth in the U.S. Market
As we close out 2024, this year’s institutional activities—such as Blackstone’s acquisition of Tricon (Canada’s largest REIT) and Invitation Homes' $1 billion commitment to single-family home purchases—reinforce SHARE's conviction that the U.S. single-family rental (SFR) market is poised for continued growth. These moves highlight increasingly attractive opportunities in the SFR space, signaling that now is the time for savvy investors to capitalize on the momentum.
Why Single-Family Rentals?
Due to its sheer scale and variety, the U.S. single-family housing market is the largest and most diverse real estate sector globally. With over 140 million housing units across a wide range of price points, geographic locations, and property types, the U.S. offers unparalleled investment opportunities. This diversity allows investors to target different demographics and regional markets, from high-growth urban centers to stable suburban neighborhoods. Additionally, the market's size and maturity make it more liquid, providing investors with the flexibility to enter or exit investments with relative ease compared to other real estate asset classes.
While the SFR sector is relatively young as an institutional asset class, it offers unique advantages that set it apart from traditional property types. These benefits allow investors to hedge against market volatility while enjoying long-term capital appreciation and consistent cash flow. The low correlation with broader markets and inherent inflation protection make SFRs an attractive choice for investors seeking stability and reliable returns.
The Dominance of "Mom-and-Pop" Investors
A defining characteristic of the SFR market is the significant presence of “mom-and-pop” investors, who own approximately 80% of SFRs. However, retail investors often struggle with the demands of being landlords, facing challenges such as tenant management, maintenance, and the inability to scale operations effectively.
Many of these smaller investors eventually sell their units due to the day-to-day operational stress and financial strain of managing single properties. This creates a ripe opportunity for institutional investors, who currently hold only about 3% of the SFR market. Projections suggest that institutional investors could control up to 40% of U.S. rental homes by 2030, signaling significant growth in the sector over the coming years.
Struggles of Retail Investors
Tenant Management:
Managing tenant relationships can be demanding, requiring time and effort to address issues, enforce lease agreements, and ensure tenant satisfaction. Poor management can lead to higher turnover rates and rental income loss.
Renovations and Property Maintenance:
Keeping properties in good condition requires regular maintenance and sometimes costly renovations. Retail investors often lack the expertise or resources to manage and budget these tasks efficiently, not including overseeing the work, leading to delayed repairs, exceeding budgets, and potential tenant dissatisfaction.
Limited Resources and Inability to Scale Effectively:
Many retail investors struggle to build the necessary infrastructure to manage multiple properties. Without a dedicated team, they may find it challenging to manage multiple properties, and maintain operational efficiency, leading to increased stress and financial strain. This inability to scale often results in investors feeling overwhelmed, contributing to their decision to offload their properties.
Growing Demand Amidst Housing Shortages
A critical driver of the SFR market's strength is the ongoing housing shortage in the U.S. Over the last decade, household formation has outpaced new construction by about 600,000 units annually, leading to a shortfall of three to five million homes. Recent interest rate hikes have further constrained supply, as homeowners with historically low mortgage rates are less likely to sell. With inventory levels currently below the long-term average, housing prices are expected to continue rising, driven by population growth and persistent demand for rental properties.
For example, in metro areas like Atlanta and Memphis, which are prime regions for real estate investors, the housing supply has not kept pace with demand. According to recent market data, Atlanta's suburbs are experiencing a shortage with an average of 2.5 to 4 months of available housing supply, below the 6-month threshold traditionally considered indicative of a balanced market. The situation in Memphis is similar, with 3 to 4 months of supply, reflecting ongoing competition for available homes.
National data further reinforces this point. According to Daniel McCue, senior research associate at Harvard’s Joint Center for Housing Studies, "The spoken rule is that 6 months of supply has traditionally indicated a balanced market. At this point, we’re at historically low monthly supply." The latest data shows that nationally, housing stock can meet 3.2 months of demand based on current market conditions. NBC News reports that the number of new listings remains unusually low, keeping pressure on home prices and increasing competition, especially in growth markets like Atlanta and Memphis.
In addition to this supply gap, recent trends in single-family construction have focused primarily on higher-priced homes, limiting the availability of new entry-level housing and keeping more households in rental units longer. With fewer affordable ownership options, demand for rental housing remains strong.
Millennials are another key demographic fueling this demand. As the largest generation, they’re entering a life stage where space and stability become priorities. The pandemic accelerated this shift as remote work made larger living spaces more desirable. As millennials—particularly those aged 35 to 49—approach middle age, this group is expected to see elevated growth, further supporting SFR demand.
Compounding this are the rising barriers to homeownership. Since late 2019, home prices have surged by 40%, and coupled with high mortgage rates, purchasing a home has become increasingly difficult. This has made single-family rentals a more affordable and attractive alternative for many would-be homeowners who are seeking the benefits of single-family living without the financial burden of buying in today’s market.
Resilience and Economic Stability
Single-family rental properties have demonstrated remarkable resilience during economic downturns. They typically attract longer-term tenants, resulting in lower turnover rates compared to multifamily properties. This stability is compounded by a highly diversified resident base; SFR homes cater to families seeking the space and autonomy that single-family living provides. This combination of low tenant turnover and consistent demand underscores the durability of SFRs as reliable income-generating assets.
Strong Historical Performance
Historically, U.S. housing values have shown remarkable resilience, maintaining an average annual growth rate of 5.5% over the last 50 years. Regulatory changes since the Global Financial Crisis (GFC) have created a more stable foundation for the market, supported by conservative mortgage underwriting practices.
Today’s challenges center on affordability and supply constraints rather than the delinquencies and distressed sales as seen in previous downturns.
Addressing Risks in the SFR Market
While SFRs offer resilience and stability, it's important to acknowledge potential risks. These include factors that can affect cash flow and efficiencies.
Local Market Volatility:
The value and rental demand of single-family homes can fluctuate based on local economic conditions, employment rates, or population changes. If a market experiences a downturn, it may lead to lower rental demand, higher vacancy rates, or even a drop in property values. Investors need to diversify across different markets to spread risk, and SHARE’s data-driven approach helps ensure you invest in stable, growth-oriented regions.
Regulatory Changes in Rental Laws:
Changes in local or state rental regulations can directly impact rental income, eviction procedures, and tenant rights. For example, stricter rent control measures or eviction moratoriums could limit your ability to increase rent or manage problematic tenants. SHARE’s property management partners closely monitor regulatory developments across all markets and ensure compliance, helping investors navigate these legal changes without disrupting their cash flow.
Rising Property Taxes:
As property values rise, so do property taxes, which can reduce your rental income if not accounted for in your financial model. Unexpected spikes in property taxes can negatively impact net operating income, especially if they occur suddenly. SHARE mitigates this risk by focusing on markets with relatively low property taxes, in landlord-friendly states with no rent control. Additionally, SHARE includes tax analyses in its underwriting process, ensuring investors are prepared and able to minimize unexpected costs. This proactive approach allows for better financial planning and more stable cash flows for investors.
Service Fees:
Property management costs can add up over time, particularly for investors managing multiple properties, each requiring its dedicated team. Rising service fees or unexpected charges from third-party providers can eat into profitability. SHARE addresses this risk by partnering with institutional-grade service providers that offer competitive, transparent pricing. Additionally, the more properties investors own through SHARE, the greater their cost savings. SHARE also guarantees that if a property is vacant, no service fees will be charged, further protecting investors' bottom line and ensuring efficient management.
Potential Maintenance Costs:
Older properties may come with higher maintenance expenses, and managing tenant turnover can be challenging in more transient rental markets. SHARE mitigates these risks by conducting detailed property inspections and connecting investors with professional property managers who handle repairs, maintenance, and tenant relations. This ensures smoother day-to-day operations, and reduces turnover, providing investors with a hassle-free ownership experience.
Capitalizing on the Institutional Shift
The GFC marked a significant turning point for SFR ownership, with many homes purchased by investors during the crisis. Programs like the Real Estate Owned (REO) initiative enabled private investors to acquire foreclosed properties and rent them out, leading to the rise of SFR-focused real estate investment trusts (REITs) such as Invitation Homes and American Homes 4 Rent.
As the SFR market matures, larger firms have begun consolidating smaller competitors to take advantage of economies of scale. This trend has accelerated the institutionalization of the SFR space, making it more appealing to both individual and institutional investors. With larger institutional investors reshaping the market, individual investors working with SHARE can stay ahead by leveraging our expertise and network to access high-performing markets.
The Institutionalization of SFRs
The institutionalization of the SFR market is a key trend shaping the future of real estate investment. Major players are increasingly utilizing advanced data analytics and leasing platforms to streamline operations and reduce costs. Data-driven insights allow investors to identify the most promising markets and optimize property performance, while many technological advancements increase property appeal, tenant satisfaction, and rental income.
As institutional ownership grows, the need for operational efficiency and scalability increases. Larger SFR portfolios benefit from economies of scale, allowing investors to lower operational costs through bulk purchasing and standardized management processes. This streamlining not only boosts profitability but also enables continuous investment in improving property quality, thereby boosting value appreciation. For retail investors, institutionalization provides a more efficient and scalable path to managing SFR assets, reducing the headaches traditionally associated with property management.
By working with SHARE, investors—whether they own one home or a portfolio of 20—can reap these same benefits. SHARE’s partnerships with institutional-grade service providers and technology platforms grant all investors access to bulk savings, streamlined operations, and high-efficiency property management processes usually reserved for large institutional players. This means investors of any scale can achieve greater profitability while enjoying a hands-off, hassle-free ownership experience, effectively lowering the barriers to managing and growing their real estate portfolios.
Working With SHARE
At SHARE, we empower investors to effortlessly tap into the growing U.S. SFR market with access to institutional-grade service providers. Our services go beyond simple property acquisition—we specialize in off-market deals, ensuring you gain access to lucrative deal flow not available to retail investors. SHARE also provides comprehensive diligence, integrating property management, reporting, bookkeeping, and centralized documentation into one place so you can focus on building your portfolio while we handle the complexities.
Our end-to-end approach ensures smooth transitions between property acquisition, property management, and portfolio growth. With SHARE, you're not just owning rental properties—you're gaining institutional-grade support and strategy tailored to your investment goals. Connect with SHARE today to explore how we can support your investment journey in the thriving single-family rental landscape.
