Today’s REI Classroom Lesson
Adam talks to us today about where the single-family rental market is today and how it might change over the next 10 years.
REI Classroom Summary
Currently, a very small percentage of SFR’s are owned by an institution but over the next 10 years, this number could go up with consolidation.
Listen to this REI Classroom Lesson
Real Estate Investing Classroom Show Transcripts:
Mike: Welcome back to the flipnerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Adam: Hi. My name’s Adam Stern. I’m president of OwnAmerica. I’ll be the host of your REI Classroom for today. OwnAmerica of course, is the world’s leading SFR platform for trading single family rental property portfolios. What I wanted to talk about with you today is the trillion dollar consolidation that’s going on in the SFR marketplace.
Mike: This REI Classroom real estate lesson is sponsored by theinvestormachine.com, FlipNerd’s private investor coaching program and your blueprint to investing success.
Adam: I wanted to kind of paint the picture of where the SFR marketplace stands today and what I see happening over the next 10 years because to understand where the single family rental market stands in relation to the other core commercial real estate asset classes is a pretty important thing. Amherst came out with a white paper not too long ago that outlined a lot of great things in the SFR space, one of which was how single family rental properties as a marketplace stacks up to the other core commercial asset classes.
What it showed was SFR is bigger than every one of them save for multifamily. All of the assets combined in the single family rental market, that is all of the homes that are owned and operated as rentals by investors, equals $3.1 trillion today compared to the multifamily $3.5 trillion and the other 4 asset classes, in commercial, office, retail, industrial, hospitality, all in the $2.2 trillion to just over the $1 trillion mark, which shows that SFR is a massive, massive market when compared to the other commercial asset classes.
The interesting thing they showed was that the institutional ownership of these other asset classes dwarfs that of SFR. You take multifamily for example. Fifty-five percent of multifamily properties in the United States are owned by institutions when compared to institutional ownership of SFRs which is only 1%. That’s a huge disparity.
If you think about the trend that’s happening right now and will continue to happen for the next 10 years, if you think about the trajectory of institutional ownership being less than 1% right now or about 1%, if it raised to let’s say 35%, which would still be less than multifamily by a fair margin, that would equate to $1 trillion of assets being acquired by large institutions and brought from large portfolio owners to institutional ownership and medium-sized owners to institutional ownership. And, there is a massive amount of money that is going to be made by people I suspect very much like the ones that are listening to this podcast and that are members of FlipNerd.
We actually do portfolio sales, so we look at things in terms of acquisition fees. If you think about that just in terms of the amount of money that can be made in this consolidation just by doing sales of properties, if you earn 2% on . . . if the average of 2% was earned on this consolidation, that’s $20 million in acquisition fees that can be earned by people that create buying opportunities for these institutions to consolidate.
The thing we’re seeing right now is the professionalism and the operational capacity of these larger funds that are either rivaling or actually are right now better than the operational capacity of a lot of the large scale multifamily owners in the United States. We just had a deal that got underwritten at a 70% NOI, that’s 30% expense load because an owner in a market had such a large portfolio that their expense ratio got pushed down so far that we were able to underwrite it at a 70% NOI.
That kind of thing where the scale and the operational efficiencies of these large portfolio owners gets to a point where their acquisition opportunities become larger and larger and larger. You can see how a trend toward consolidation can be sped along by portfolios getting larger, operational capacity getting better, NOI margins getting larger, and expense margins getting shrunk down.
We think this is going to be a continued trend and we believe that everyone on a continuum of large investors all the way to the very smallest investor has a role to play. That’s a subject I’ll talk more about in the following webcasts. For now, I appreciate you listening.
Mike: Are you looking to change your life through real estate investing? If you’re interested in either getting started or taking your business to the next level, please check out FlipNerd’s private program at theinvestormachine.com. This is the most robust real estate investor coaching, networking, and mastermind on the planet and designed for your success.
If you’re ready to roll up your sleeves, ready to take personal responsibility for your own success, and ready to dive into a world class instructional coaching program that provides you step-by-step instruction to help you achieve financial freedom, then you should apply today. Spaces are limited and candidates are only considered after an application and interview process. Our 12-month investor program is unparalleled. Think you might be a fit? Learn more today at theinvestormachine.com.
Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of flipnerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.
Are you a member yet of flipnerd.com, the hottest real estate investing social community online? If not, you can join for free in less than 30 seconds and get access to hundreds of off-market deals, vendors in your market to help you in your business, and you can start networking with thousands of other investors just like you. Get your free account now at flipnerd.com.
Please check out the FlipNerd family of real estate investing shows where you can access hundreds of expert interviews, quick tips, and lessons from leaders across the real estate investing industry. They’re available at flipnerd.com/shows or simply search for FlipNerd in the iTunes store.
Adam: Hi. My name’s Adam Stern. I’m president of OwnAmerica. I’ll be the host of your REI Classroom for today. OwnAmerica of course, is the world’s leading SFR platform for trading single family rental property portfolios. What I wanted to talk about with you today is the trillion dollar consolidation that’s going on in the SFR marketplace.
Mike: This REI Classroom real estate lesson is sponsored by theinvestormachine.com, FlipNerd’s private investor coaching program and your blueprint to investing success.
Adam: I wanted to kind of paint the picture of where the SFR marketplace stands today and what I see happening over the next 10 years because to understand where the single family rental market stands in relation to the other core commercial real estate asset classes is a pretty important thing. Amherst came out with a white paper not too long ago that outlined a lot of great things in the SFR space, one of which was how single family rental properties as a marketplace stacks up to the other core commercial asset classes.
What it showed was SFR is bigger than every one of them save for multifamily. All of the assets combined in the single family rental market, that is all of the homes that are owned and operated as rentals by investors, equals $3.1 trillion today compared to the multifamily $3.5 trillion and the other 4 asset classes, in commercial, office, retail, industrial, hospitality, all in the $2.2 trillion to just over the $1 trillion mark, which shows that SFR is a massive, massive market when compared to the other commercial asset classes.
The interesting thing they showed was that the institutional ownership of these other asset classes dwarfs that of SFR. You take multifamily for example. Fifty-five percent of multifamily properties in the United States are owned by institutions when compared to institutional ownership of SFRs which is only 1%. That’s a huge disparity.
If you think about the trend that’s happening right now and will continue to happen for the next 10 years, if you think about the trajectory of institutional ownership being less than 1% right now or about 1%, if it raised to let’s say 35%, which would still be less than multifamily by a fair margin, that would equate to $1 trillion of assets being acquired by large institutions and brought from large portfolio owners to institutional ownership and medium-sized owners to institutional ownership. And, there is a massive amount of money that is going to be made by people I suspect very much like the ones that are listening to this podcast and that are members of FlipNerd.
We actually do portfolio sales, so we look at things in terms of acquisition fees. If you think about that just in terms of the amount of money that can be made in this consolidation just by doing sales of properties, if you earn 2% on . . . if the average of 2% was earned on this consolidation, that’s $20 million in acquisition fees that can be earned by people that create buying opportunities for these institutions to consolidate.
The thing we’re seeing right now is the professionalism and the operational capacity of these larger funds that are either rivaling or actually are right now better than the operational capacity of a lot of the large scale multifamily owners in the United States. We just had a deal that got underwritten at a 70% NOI, that’s 30% expense load because an owner in a market had such a large portfolio that their expense ratio got pushed down so far that we were able to underwrite it at a 70% NOI.
That kind of thing where the scale and the operational efficiencies of these large portfolio owners gets to a point where their acquisition opportunities become larger and larger and larger. You can see how a trend toward consolidation can be sped along by portfolios getting larger, operational capacity getting better, NOI margins getting larger, and expense margins getting shrunk down.
We think this is going to be a continued trend and we believe that everyone on a continuum of large investors all the way to the very smallest investor has a role to play. That’s a subject I’ll talk more about in the following webcasts. For now, I appreciate you listening.
Mike: Are you looking to change your life through real estate investing? If you’re interested in either getting started or taking your business to the next level, please check out FlipNerd’s private program at theinvestormachine.com. This is the most robust real estate investor coaching, networking, and mastermind on the planet and designed for your success.
If you’re ready to roll up your sleeves, ready to take personal responsibility for your own success, and ready to dive into a world class instructional coaching program that provides you step-by-step instruction to help you achieve financial freedom, then you should apply today. Spaces are limited and candidates are only considered after an application and interview process. Our 12-month investor program is unparalleled. Think you might be a fit? Learn more today at theinvestormachine.com.
Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of flipnerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.
Are you a member yet of flipnerd.com, the hottest real estate investing social community online? If not, you can join for free in less than 30 seconds and get access to hundreds of off-market deals, vendors in your market to help you in your business, and you can start networking with thousands of other investors just like you. Get your free account now at flipnerd.com.
Please check out the FlipNerd family of real estate investing shows where you can access hundreds of expert interviews, quick tips, and lessons from leaders across the real estate investing industry. They’re available at flipnerd.com/shows or simply search for FlipNerd in the iTunes store.
