Tag Archives: Buy a House for a Buck?

The Single-Family Rental Revolution Continues

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The Kroll Bond Rating Agency has released its Single-Borrower SFR: Comprehensive Surveillance Report:

Kroll Bond Rating Agency (KBRA) recently completed a comprehensive surveillance review of its rated universe of 23 single-borrower, single-family rental (SFR) securitizations. In connection with these transactions, 132 ratings are outstanding, all of which have been affirmed. The transactions have an aggregate outstanding principal balance of $13.0 billion, of which $12.6 billion is rated. These transactions have been issued by six sponsors, which own approximately 159,700 properties, 90,649 of which are included in the securitizations that are covered in this report. (3)

This business model took off during the depths of the Great Recession when capital-rich companies were able to buy up single-family homes on the cheap and in bulk. While the Kroll report is geared toward the interests of investors, it contains much of interest for those interested in housing policy more generally. I found two highlights to be particularly interesting:

  • The 90,649 properties underlying the subject transactions have, on average, appreciated in value by 10.2% since the issuance dates of the respective transactions . . . (4)
  • The underlying collateral has exhibited positive operating performance with the exception of expenses. Contractual rental rates have continued to increase, vacancy rates declined (but remain above issuance levels), tenant retention rates have remained relatively stable, and delinquency rates have remained low. (Id.)

KBRA’s overall sector outlook for deal performance is

positive given current rental rates, which have risen since institutional investors entered the SFR space, although the rate of increase has slowed. Future demand for single-family rental housing will be driven by the affordability of rents relative to home ownership costs as well as the availability of mortgage financing. In addition, homeownership rates are expected to continue to decline due to changing demographics. Recent data released by the Urban Institute shows the percentage of renters as a share of all households growing from 35% as of the 2010 US Decennial Census to 37% in 2020 and increasing to 39% by 2030. Furthermore, 59% of new household formations are expected to be renters. Against this backdrop, KBRA believes single-borrower SFR securitizations have limited term default risk. However, there has been limited seasoning across the sector, and no refinancing has occurred to date. As such, these transactions remain more exposed to refinance risk. (9)

Kroll concludes that things look good for players in this sector. It does seem that large companies have figured out how to make money notwithstanding the higher operating costs for single-family rentals compared to geographically concentrated multifamily units.

I am not sure what this all means for households themselves. Given long-term homeownership trends, it may very well be good for households to have another rental option out there, one that makes new housing stock available to them. Or it might mean that households will face more competition when shopping for a home. Both things are probably true, although not necessarily both for any particular household.

Dollar Homes

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Realtor.com quoted me in Buy a House for a Buck? The Real Story Behind $1 Listings. The story reads, in part,

Hidden deep within the bowels of real estate listings are a few head-scratchers that would no doubt catch any bargain hunter’s eye. They’re homes for sale for the grand total of one crisp American dollar. So what’s the deal? Are they for real?

I decided to find out by actually clicking, and calling, and learning the stories behind these tempting facades. And it turns out, $1 listings can mean many things. Here’s what this lowball price is actually all about.

*     *     *

Possibility No. 3: It truly is for sale for $1, but…

The next four places for $1 that I check out are all rundown properties in Detroit. They range in description from “fire damage sold as is” (translation: a charred pile of lumber—pic below) to “bungalow with three bedrooms, one bathroom, basement and much more” (translation: “more” means plywood for windows and doors).

Still, some houses sit on decent lot sizes of 3,000+ square feet in neighborhoods that seem habitable at first glance. The listing agent won’t return my call, but I track down an agent willing to show me the various rundown homes. Though back taxes or liens on the property may jack up the price, I ask whether the house will really sell for $1. “Sure,” he says. “This is Detroit.”

Now that I’ve found a true $1 listing, should I hand over a George Washington for one of these fixer-uppers?

“When a house is being sold for a dollar, it means that the local real estate market has cratered,” says David Reiss, professor of law at Brooklyn Law School who focuses on real estate issues and community development. “Land has no value. Or even worse, it has negative value and buyers of $1 homes will end up getting snookered. Owning land comes with various mandatory expenses like real property taxes. It’s possible the true value is even lower than a dollar. In that case, you will see a lot of $1 houses staying on the market, as hard as that is to believe.”

Reiss further explains how the Motor City’s market cratered so deeply: “Real estate’s value typically comes down to location. If jobs have disappeared, if residents have disappeared, if services have disappeared—then value disappears.”

Beyond having zero worth, a $1 home is likely a gaping money pit. When the New York Times ran a piece on the subject in 2007, it found that “the houses often require hundreds of thousands of dollars in renovations.”

Though my search for $1 properties was a bust in the end, there once were $1 homes worth buying. “Think of New York City,” says Reiss. “Homes that were abandoned in the 1970s are now selling for seven figures.”

Bottom line? One-dollar listings may be a risky gamble, but, hey, you never know.