Investor Activity Drives Single-Family Rental Market, Reaching 5-Year High
Despite headlines often focusing on large institutional investors, the single-family rental market is overwhelmingly shaped by smaller players. individuals owning ten or fewer properties comprise over 90% of all investor-owned homes, while those holding 1,000 or more represent a mere 2% of the total.
Recent trends indicate a shift in strategy among these larger institutions. For six consecutive quarters, they have been selling more homes than they are purchasing, according to analysis from parcl Labs. Companies like Invitation Homes, Progress Residential, and FirstKey Homes all reported higher sales volume than purchases in the third quarter of this year.
However, this doesn’t signal a complete retreat. These institutions are redirecting capital towards build-to-rent communities. This shift is expected to lessen competition for both small investors and conventional homebuyers, while concurrently increasing the supply of rental properties – a crucial factor in a market where affordability challenges are pushing younger adults towards renting.
“They’re not exiting the space, just diverting capital into build-to-rent communities,” explains Rick Sharga, founder and CEO of CJ Patrick Co. “But this shift means less competition for small investors and traditional homebuyers, while also adding more rental supply, which is needed in today’s market where younger adults often opt to rent since they can’t afford to buy a home.”
Geographically, Texas, California, and Florida hold the largest number of investor-owned homes, correlating with their status as the most populous states. Conversely,Hawaii,Alaska,Montana,and Maine exhibit the highest percentage of investor-owned properties,likely due to their strong tourism industries.
Investors consistently target lower-priced homes to maximize potential resale profits. In the second quarter of this year,investors paid an average of $455,481 per home,below the national average of $512,800 (according to a CJ Patrick report). This was the highest average investor purchase price in six quarters, reflecting the broader increase in home prices.
Large investors specifically focused on even more affordable properties, with an average purchase price of $279,889 and an average sale price of $334,787. Their activity is concentrated in the Midwest and South, regions where housing costs remain below the national average.