A recent report by John Burns Real Estate Consulting asserts that single-family rentals should be part of any multifamily rental property portfolio. It suggests that owning purpose-built single-family communities are the best way to add this asset class.
Why single-family rentals?
The report points out a number of ways in which a portfolio of single-family properties can complement a multifamily portfolio. Single-family homes typically have more bedrooms than do apartments so offering both would allow growing families to stay within your portfolio when moving from a multifamily rental to a single-family rental. It also provides product type diversification.
Single-family rentals are said to have certain inherent advantages over multifamily properties. These include lower resident turnover, more stable rent growth and the ability to charge higher rent per unit than would be the case for an apartment.
Built for rental
While a portfolio of single-family rentals could be created by buying up individual properties as they become available, the report suggests that the preferred approach is to build a community of single-family homes with the intent of renting them. It calls this built for rental (BFR). The geographic concentration that this approach provides allows the operation of the BFR community to be similar to that of a multifamily community.
Interestingly, in a table discussing the unit densities possible with various product types, the report included duplexes and townhome multiplexes. Clearly, the author interprets the category “single-family homes” loosely.
The report discusses other aspects of BFR communities including lot sizes and amenities. It also talks about their operational characteristics including absorption rates and cap rates.
While not mentioned in the report, a community of purpose-built duplexes or multiplexes with shared amenities is the usual configuration of military housing communities today. It will be interesting to see the appeal of such a community to the civilian population.
The full report can be viewed here.