Lucky for us (cue the sarcasm) the Bay Area is the most expensive major metropolitan area to live in. The average home price in San Jose is now over $1.7 million (22% year over year increase) and in many communities you cannot find a single-family home on the market for less than $1 million. Further, rents have bounced back since the pandemic with an average of $3,300 per month, up 12% since last year. With appreciation on a steady rise, purchasing Bay Area real estate remains a proven wealth building opportunity. But as affordability wanes due to increasing demand and interest rates, renting remains a cheaper option for many. As a result, the demand for single family rentals is increasing and investors are taking notice.
Over the years, we’ve seen a significant increase in smaller investors purchasing single family homes-most with the intention to flip the property and sell for a profit. But in the last two years, we are starting to see something different emerge- institutional ownership in the single family space. Last year investment firm Blackstone bought Home Partners of America- a move that forged a new path in the rent to buy market. And while some criticize this move, claiming ordinary American home buyers will now have to compete with billion-dollar institutional investment firms, many of these investors claim they are providing a solution to the nation’s housing shortage. Blackstone recognizes that the rental demand for single-family is growing as buyers are priced out of the market, and as a result, offers these buyers a new path to ownership structured as a rent to buy option. Similarly, large developers are seeing an opportunity to appease the growing rental demand in hot housing markets across the country and are now constructing more build-to-rent single family developments.
So where will this all lead? In the coming years, we can expect housing inventory to lag behind demand which will further competition and result in many first-time buyers looking for short-term alternatives. As a result, investors will see an opportunity in the single-family rental market and either build new developments or buy up existing single-family homes.
Here’s How to Gain Your Competitive Edge: Are you looking to buy an investment property? Historically, most investors have focused on multi-family due to its scalability; however, based on the aforementioned trends, now is the time to consider the unique benefits of single-family investing:
Please reach out to us with any specific questions or concerns. We’re always here to help navigate your real estate needs.
Rabello Group