Large investors have dominated the commercial real estate market for practically ever, while average individuals have typically been able to find opportunities in the single-family and small multifamily space fairly easily.
However, when a major opportunity presents itself, institutions are quick to pour their vast resources into capturing and controlling a market. This has happened with corporate farming taking control of the food supply and Walmart Inc. (NYSE: WMT) and Amazon.com, Inc’s (NASDAQ: AMZN) Whole Foods practically obliterating smaller grocery stores.
The same appears to be happening now in the single-family housing market. Large investment firms got an appetite for single-family rentals when the housing market crashed in 2008. That appetite has been growing over the past couple of years and the buying activity so far in 2022 makes it clear that there’s no plan of slowing down.
Most recently, the Swiss Investment Firm Partners Group acquired a $1 billion portfolio comprising over 3,500 single-family homes across 17 states.
With the extreme shortage of housing, some firms are focusing on acquiring available land to develop build-to-rent communities.
As of March 31, 2022, Invitation Homes Inc. (NYSE: INVH), the largest owner of single-family homes in the U.S., had a pipeline of an additional 1,932 new construction homes it will acquire from third party builders. American Homes 4 Rent (NYSE: AMH) has over 12,000 lots for development, with as many as 2,400 new homes expected to be built by the end of 2022.
With a growing influence over the rental market, institutional investors will have a greater ability to control rent prices and, therefore, the value of their assets. With interest rates rising and a large pool of investors willing and able to purchase existing inventory, the demand for rental units is expected to continue climbing.
Many people are hesitant to buy real estate at what may seem to be the height of the market, but there are a lot of factors suggesting that availability is unlikely to improve. The days of individual investors being able to purchase real estate at a price that makes sense as an investment could very well be coming to an end.
If acquiring a portfolio of properties isn’t a viable option, retail investors can still gain access to this asset class through real estate investment trusts (REITs), real estate crowdfunding and fractional ownership.
Private equity real estate offerings allow individuals to get a share of the equity and cash flow from income-producing assets, such as multifamily properties, portfolios of rental properties and even the development of build-to-rent communities.
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