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Individual Investors Turn Attention to SFR Market

home-in-your-handsThe single-family home rental (SFR) market has growing appeal for individual investors, but a new survey finds most are reluctant to take on the responsibilities that go with renting out a property.

In a report released Tuesday, market research firm ORC International revealed 59 percent of investors are interested in dipping their toes into SFR properties, citing the associated tax benefits and the potential for higher cash flows than traditional fixed-income products.

Asked about the appeal of SFR properties, 20 percent of those polled said they were attracted to the potential of asset appreciation. Other benefits pointed out by investors included portfolio diversification and asset allocation (16 percent) and leverage through the use of financing (12 percent).

"Increasingly individual investors are following the lead of institutional investors and looking to real estate investing as an alternative to traditional, low-yielding bond and mutual fund options," said Don Ganguly, CEO of real estate investment management firm HomeUnion, which sponsored the survey.

Ganguly went on to say, "These investors are attracted to the potential for income and for asset allocation, not the prospect of a quick gain by house-flipping."

At the same time, without the same resources institutional investors have, the majority of individuals surveyed said they would need outside help.

According to the survey results, one-third of investors said they would likely buy a property in another market to ensure a better return on their investment. That number rises up to more than 50 percent if respondents could rely on a firm with strong knowledge of the local market, if the property was management by a trusted national firm, or if they had access to state-of-the-art market data.

Another hurdle—and possibly the biggest obstacle, the survey shows—was concern over the responsibility of having to act as a hands-on landlord.

According to HomeUnion, more than half of investors said they would "definitely be interested" in investing in an SFR if they had the assistance of a company to handle the selection, purchase, rehabilitation, and management of rental homes.

"The prospect of calls at two in the morning about backed up toilets, or the hassle of finding and vetting tenants, has kept millions of potential individual investors out of residential real estate, even as billions of dollars of institutional investments have poured into this new and growing asset class," Ganguly noted. "We believe, and the ORC International survey confirms, that individuals are interested in the benefits of investment in SFR if, like their institutional counterparts, they can outsource the logistics of property management to reputable turnkey vendors."

While investment activity in housing has diminished over the last year, investors still have a relatively large footprint in the market. Last year, more than 20 percent of homes purchased in the United States were investment properties, and CoreLogic's latest data shows that nearly 37 percent of April transactions were made in cash—"a relatively strong proxy for investor activity," HomeUnion said.


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