Publicly traded REITs are expanding into the single-family home market and creating a new type of home ownership, says Greg Rand, founder of OwnAmerica.
A person can be a tenant and at the same time invest in the REIT that owns that home and hundreds of others. In addition, financial advisors can put their clients in the single-family home market for a nominal investment, says Rand, who provides acquisition and advisory services to institutional investors in the single-family real estate market.
OwnAmerica, founded by Rand, represents publicly traded REITs, private equity firms and foreign investment funds in the aggregation of single-family homes in 40 cities.
Rand predicts single-family REITs will follow the same path as REITs that invested in office buildings, retail space and apartment houses after the collapse of the mortgage market five years ago.
“A lot of advisors are intrigued by the idea but they are waiting to see if single-family home REITs can generate returns,” he says. “It is still early. Eventually, brands will become known and advisors will realize what a good asset class single-family homes are. The ones that will be successful will be the ones that create competition for the best resident-shareholders.”
The first publicly traded single-family home REIT was created in the summer of 2012 and there are now three. The investment is in a tangible product that is stable because it is based on the demand for housing created by population growth, Rand says.
The REITs have moved away from the discount markets in cities that saw a high rate of foreclosures after the 2008 financial collapse to investments in solid, well-managed cities, Rand says. Investments can be as small as $20 a share for individuals or as much as many millions for institutional investors.
Appreciation in single-family homes is an average of 3.5 percent a year and yield from the REIT is an average of 6.5 percent, resulting in a 10 percent return, says Rand.
To populate the homes, investors want to attract residents who will not want to leave.
“For rental property, turnover and maintenance are your enemies,” says Rand. “If this plays out the way we think it will, we will have resident shareholders who have a vested interest in remaining in a home and maintaining it because they will have some ownership.”