Why not more single-family home rentals?
It might not be the choice everyone makes, but when we relocated to the suburbs 15 years ago in search of school options, we rented a house for a year before we bought, to test-drive the local district.
It might not be the choice everyone makes, but when we relocated to the suburbs 15 years ago in search of school options, we rented a house for a year before we bought, to test-drive the local district.
We ended up buying before the year was up because we found the "perfect" house. But more important, after just a few weeks we decided that the district and our younger son were the right fit.
We wanted a house to rent, not an apartment, because after 20 years of homeownership a small space would have been too confining for me.
Yet there were few houses available to rent, and all but one seemed to have problems. The weirdest was the one where it appeared as if the previous occupants had stolen away during the night.
The low inventory was most surprising, because my parents were always able to find short-term house rentals when I was growing up and my father changed jobs. It was, however, a phenomenon not typical of Philadelphia and most other suburbs, probably because the region was still shaking off the decade-long real estate downturn that occurred right at the edge of the 2000s housing boom.
When that boom turned to bust, with record foreclosures and low new-home sales, single-family detached homes for rent were much in demand.
Those prospective renters were homeowners who had lost their houses through foreclosure, as well as a growing number of younger families wary of buying.
In fact, investors were trying to pinpoint where that demand was centered and come up with inventory that could be cleaned up and pushed on the market almost overnight.
For several years, a large percentage of real estate transactions nationally and regionally were all-cash sales - an undisputable indicator of the presence of investors.
Since the most recent downturn, as we all are aware, renting has been in fashion among a large cross-section of the population, but the focus is multi-family housing rather than single-family.
There are exceptions, but why not single-family?
John Burns, CEO of the consulting firm that bears his name, explains: "Single-family rental home neighborhoods seem like a great idea, until you run the math."
Almost 12 percent of all households in the country now rent a single-family home, he said.
Although a portion of those renters will pay a rental premium for a new home, there is a snag, Burns said. While the rental demand remains strong, "home building and rental clients who have run the analysis have concluded that build-for-sale homes usually create the most profits," he said. "Thus, most new home neighborhoods will continue to be for sale rather than for rent."
The exceptions, Burns said, include weak for-sale demand - when a for-sale community might take years to sell out, a for-rent community can return cash sooner.
Another exception? A master developer may need to attract more residents quickly to help its new retail center thrive, Burns said. Rental homes generally lease up very quickly and can bring needed customers to an area to help support a retail development.
Still another? The developer might also choose to increase cash flow by selling a for-rent parcel to someone who won't build homes that compete with the for-sale homes in the community. That generates cash and brings in potential future buyers.
Finally, Burns' research shows, relocating households prefer to rent for a while before buying. They want to learn more about the area, he said, and might even want to wait for more certainty in their job situations.
215-854-2472 @alheavens