Real estate investment trusts, or REITs, have historically invested in multi-family residential real estate, not single-family homes. However, this has started to change in recent years. In this crazy live Video clip, recorded on January 21Fool.com contributor Matt Frankel explains what investors need to know.
Matt Frankel: But just to give you some stats about these companies and why the build-to-let model and the single-family rental model are so popular these days. Invitation houses (NYSE: INVH), ticker symbol INVH. It is the largest single-family real estate investment trust. They have around 80,000 homes in 16 different markets.
Over the past 12 months their new lease has stretched out, which means that when someone moves out and then vacates it, the difference in rent is 16%. As house prices have skyrocketed, rental rates have also increased. The average lease renewal rate is 8%, which means that if someone simply chooses to renew their lease, they will pay 8% more than a year ago. This is a historically significant release gap.
The economy is fantastic here. They bought nearly 1,700 homes in the third quarter alone. Obviously, when you can charge 16% more rent than a year ago, your cash flow is going to increase dramatically. It gives you more capital to grow the business, and that’s what we see here. American Homes 4 Rental (NYSE:AMH) is built for rent. They have relationships with home builders, and they’re seeing very similar numbers, the release gap is 16% year-over-year with them, and just to show how bullish these companies are on the market, Jason is going to love this.
This also comes from their presentation. Look at the title of this slide. What is their strategic priority? Grow, grow, grow, period, the end. They see such an opportunity here. To grow, grow, grow. Look at 2019, 2020, and 2021. Their inventory additions, meaning the homes they’ve built to rent out, have roughly quadrupled over that time. This is a rapidly growing market, as you said it used to be a niche market and it is quickly becoming a core business model for many of these businesses; rental construction and single-family rental are becoming more and more institutionalized.
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