Institutional landlords see new competition from unexpected sources

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With increased supply, high mortgage rates and consumer confidence waning, it’s becoming difficult to sell homes as they conspire to keep potential buyers on the sidelines. Now, some frustrated sellers have decided to remove their property and offer it in the rental market instead.

These new rentals compete directly with institutional investors in rental space, especially in the markets where those investors are most common.

The largest investor, investors with over 50,000 homes in their portfolio, are highly concentrated geographically. According to an analysis by Atlanta, Dallas, Houston, Tampa, Florida and North Carolina, names such as Invitation Homes and American Homes 4 Rent and Progress Residential hold just one-sixth of the US housing market, according to an analysis by Parcl Labs. Inventory growth in these markets has been well over 20% over the past year.

“If these home sellers can’t find a buyer, they face three options: register and wait, reduce prices to find clear levels of the market, or convert them to rental. The last option is that Parcl Labs creates the term “accidental landowner.”

Garrett Johnson bought a house in Dallas two years ago, but recently got a new job in Houston. He thought selling his home was easy last March.

“There weren’t many buyers, not just looking, but people were helping people wait for better rates. [There was] I think that also played a factor because there was a lot of the economic uncertainty in the months of March and April when we were listing our homes,” Johnson said.

A few months later, Johnson decided to try and rent the house. That wasn’t his ideal plan, he said, but just in the first few days he had some offers.

Johnson said rent doesn’t fully cover his mortgage, but he remade his loan and put more shares in the house to lower payments. He also changed the homeowner’s insurance to landlord’s insurance for additional savings. Johnson said he doesn’t expect to sell it for several years.

“I’ve become creative and hopefully, over the next few years, I’ll start making money on my mortgage and mortgage monthly,” he said.

Inventories of homes sold over the past year have already grown steadily, especially in previous pandemic migration markets like the Sun Belt. The home has been sitting in the market for long, as sellers who have been using difficult price hikes over the past five years are reluctant to lower prices. More sales supply enters the rental pool, which could limit the landlord’s pricing power.

“There’s no significant reduction in rent, but you might not be able to get a 4% or 5% increase in rent. Maybe it’s 1% to 2% in some cases.” “But the professional tycoons, Invh and Amh, have a 4% to 5% renewal rate and a 75% retention rate in their portfolio. So keeping people at home at 4% to 5% rent is an important part of the business model.”

However, this was not the first time that happened.

“We’re looking forward to seeing you get a better understanding of our business,” said Rick Sharga, CEO of real estate advisory firm CJ Patrick Co.

According to Parcl Labs’ counts, the largest single-family rental REITs currently sell more homes than they buy. But that doesn’t mean they’re withdrawing from the market.

“They are rolling out more money to rental projects rather than competing with small investors and traditional home buyers for resale facilities,” Sharga said.

This minimizes some of the risk, but St Juste said the largest landlord must bear a decrease in occupancy in order to optimize revenues rather than cut rent.

“The progressive risk from this slow sales season is that there could be more supply. This fall, coming next spring, could limit some of the rental growth next year,” he said.