Today’s REI Classroom Lesson

Today, Adam Stern explains how FlipNerd members and other real estate investors can play a role in the single-family rental consolidation that’s starting to take place.

REI Classroom Summary

Adam elaborates on how the consolidation works for all levels of real estate investors.

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, and I’ll be your host of the REI Classroom for today. OwnAmerica is, of course, the premier online trading platform for SFR portfolios.
I previously talked about a trillion dollar consolidation that’s going on in the single family rental market and kind of outlined what that consolidation’s going to look like over the next 10 years. What I want to talk about right now is the role that all of you out there in the FlipNerd universe can play in this massive consolidation that’s taking place.
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: As I said, the size of the single family rental market is larger than every other core or commercial asset class save for multi-family. Less than 1% of the SFR market is owned by institutions today as opposed to, let’s say, multi-family that’s owned by 55%. That 55% of it is owned by institutional investors.
What I wanted to highlight is the fact that consolidation, the role of the small investor that buys one at a time, at auction or on the MLS, renovates it and tenants it himself and sells to a larger investor, is part of the consolidation. The investor that buys one property at a time and builds a portfolio of 4 or 5 in order to sell it to a medium sized investor that owns 20 is part of the consolidation.
The 20 medium sized owner that sells to the large owner that owns hundreds is part of this trend, and then of course, the larger investor that sells to institutions is also part of this trend.
There’s a role that every fish, I always think about it in terms of the largest fish eating the large fish eating the medium sized fish eating the tiny fish, can play because there is a massive amount of money that is going to be made during this consolidation by players all along the continuum. Whether it’s making money by doing acquisition services, whether it’s buying and reselling houses to larger funds, whether it’s offering property management services or renovation services, there’s all types of ways that people are going to monetize this consolidation.
I’ll highlight the fact that over the next 10 years if institutional ownership ends up landing even short of what multi-family is right now at 55%, it’s a trillion dollars of assets that are going to be bought up from large to medium to small. That’s a whole lot of money that’s going to be made by providers in this space. If you think about acquisition fees alone, if you earn 2% on that trillion dollars it’s $20 billion that are going to be earned by brokers and other people that aid in the acquisition of these properties.
The problem that is being solved right now to aid this consolidation is institutional buyers need stabilized portfolio deal flow, right? Portfolio sellers need an efficient exit. The objective here by all the people that buy and own and renovate and sell rental homes is providing that stabilized deal flow for the larger players and creating an efficient exit for themselves.
If you look at the amounts of sellers and owners that are out there, I mean the segmentation is really amazing. The largest part of this marketplace includes about 8.6 million investors that own 8.6 million homes, people that own 1. The smaller investors that own between 2 and 5, you see that it’s about 2.2. All the rest that are larger portfolio owners comprise only about 262,000 owners that own these thousands and thousands of properties.
The way I see this consolidation going is the largest investors are going to buy from the largest owners and the largest owners are going to buy from the smaller owners and the smaller owner is going to buy from the smallest owners. Again, whatever service you offer, figuring out how to monetize this consolidation that’s going on is going to be the key to capitalizing on it.
We do it in a way where we allow portfolio owners to match with portfolio buyers via our technology platform. You can do it in however way you see fit, however you run your business. My point is the idea of doing this and not playing small is an important one.
What I’ll do is I’ll make a book recommendation for you. It’s a book that we read here at OwnAmerica. It helped us out a lot. It helped us have a view of the market where it helped us not to want to play small but play bigger. That’s actually the name of the book. It’s called “Play Bigger.” It talks about creating uncontested market space for yourself and dominating categories by looking at what part of a larger trend you can find a place and you can dominate. You want to go on amazon.com. Look up “Play Bigger.” It’s a really good read, pretty short.
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