Rental Market Heats Up as Investors Purchase More Single-Family Homes

A few months ago we wrote about the news that Don Mullen, former Goldman Sachs Executive and Founder of Pretium Partners who bought up a slew of distressed properties post-2008, was once again going all in on residential real estate in 2023 – picking up properties that iBuyers and smaller investors were dumping and taking advantage of the dip in the housing market.

And it looks like Pretium Partners is not finished padding their single-family rental portfolio. According to Bloomberg, they are acquiring thousands of rental homes from home construction company D.R. Horton Inc. in a $1.5 billion deal.

The report claims that the deal includes a combination of completed homes and homes that are not yet finished. The more than 4,000 homes involved in the transaction are located in high-demand markets in the Southeast and Southwest United States, and they are already all leased to renters.

According to HousingWire, this transaction is just another signal that Wall Street is ready to re-enter the single-family rental market in full force after institutional investors shed properties at the end of 2022 following a drop in housing prices nationwide. Industry sources and housing number-crunchers told HousingWire that institutional single-family rental firms that target the $300,000 to $500,000 price point have been buying up a lot more homes since March. This comes after these firms decreased their rental property purchases by 80% year-over-year at the end of 2022.

Institutional investors currently only make up 3% of the total single-family rental market in the U.S., but that share is growing fast. Even with the decrease in activity, single-family rental purchases by institutional investors have grown about 20% in the last three or four years, according to HousingWire.

These investors realize that there is already a shortage of 6.5 million homes, and the “lock-in effect” caused by 62% of mortgaged homeowners having a rate under 4% is going to exacerbate that problem for years. This low supply means home prices will remain elevated, and the rental market will remain healthy as those priced out of the market continue to sign leases.

What Does This Mean for You?

Institutions are increasing their purchases of single-family rental properties because they know the rental market will remain strong. The amount of available homes for rent is decreasing while demand for rental properties is increasing, which bodes very well for rental income.

As we’ve written about many times before, we firmly believe that owning multiple cash-flowing properties is one of the best and most reliable ways to increase your income and build wealth. This is especially true in an environment like today where inflation is still high, and the economy is on the brink of a recession.

For those who have a long-term mindset, investing in rental real estate is 100% possible today. While it may not be as cheap as it was a few years ago, home prices will continue to appreciate over the long term like they always have.

In three years’ time, you may be in the same spot you are today – looking back and wishing you had invested three years ago.

The Bottom Line

We know investing in a rental property does not make sense for everyone. There are many factors of your overall financial picture to take into account when deciding if it is the right decision. That’s why you need an advisor who takes a holistic approach to your wealth creation.

Attaining wealth doesn’t just happen – it’s the result of a well-executed plan. At Luminate, we are not just a team of mortgage loan officers – we are mortgage advisors. Our goal is to help you use your home purchase to grow, protect, and pass on your wealth in a way that makes sense for YOU.

If you are interested in growing your wealth by purchasing a rental property, fill out the form below to request a consultation with one of our mortgage advisors. They will meet you with and help you understand the current market, clearly explain the investment mortgage programs that are available, and ensure you make the right decision through strategic financial planning and wealth advice.