If you owned a restaurant that was open for dinner only and you wanted to double your business, what would you do?
You’d probably open for lunch.
However, let’s say you are a real estate professional whose business is restricted to listing and selling houses for owner-occupants and you want to double your business. What would you do?
You might expand your business to list and sell residential rental property, Wall Street’s newest institutional asset class.
Between 2012 and 2014, Wall Street has come to know and understand the single-family residential market, which they’ve discovered performs a lot like the multifamily market. This is significant. Institutional investors already have acquired $20 billion in single-family rentals. Some believe the trend is slowing, but that’s not the case. In fact, if history repeats itself and single-family follows the path of multifamily, single-family will attract another $80 billion over the next 10 years. The sector has matured and proven itself in ways that Wall Street can understand.
I witnessed a key moment in the evolution of this asset class a few months ago at a conference of the institutional players. There was a panel debate between single-family REIT operators and multifamily REIT operators. They each pointed out the strengths of their property type, such as multifamily’s density and high rent per square foot and single-family’s low tenant turnover. They also pointed out the weaknesses of the other, such as the cost of maintaining multifamily common areas and single-family’s scatter-site maintenance challenges. Yet, when they discussed the financial returns each type achieves, they were the same: 60 percent of the rent flows to the bottom line.
This was the moment we were waiting for. The final test has been passed. An institutional asset class has been born!
So what does this mean to real estate professionals and their careers?
First, it’s important to note that the mega-investors in residential real estate represent only 1 percent of all investment property ownership in America. Of the 14 million single-family rentals that currently exist, 99 percent are held by small investors who own between one and 500 units. These property owners are all around us, even if they seem invisible. There are more than 1 million investment transactions that take place every year. Get a piece of that pie!
Second, landlords are sellers, too. You will see an emerging trend of “stabilized listings,” or rental houses that have tenants in place and are being sold that way — as performing investment units. Get a piece of that pie!
Finally, all the technology, data and professional services that have been invented to serve mega-investors are now also being offered to smaller ones. Keep your eyes open for new online resources, professional property management services, lending options and a host of other aspects of this new industry to emerge. These all represent new tools, partners and best practices that you can take advantage of.
The next time you’re thinking about ways to double your real estate business, consider listing and selling residential rental property. Your next client may be that restaurant owner who just doubled his business by opening for lunch.
Greg Rand is CEO of OwnAmerica, a national network of real estate brokerage companies that represent housing as an asset class. OwnAmerica provides the technology, training and marketing systems to real estate brokerages that pursue the single-family investment sector.
