American home builders have traditionally always kept investors at hand’s length, preferring to sell directly to individual buyers – homeowners – who’re usually happier to pay more to secure the home of their dreams.
But with the market the way it is, with builders facing rising costs and more buyers consequently being priced out of the market, they’re suddenly warming up to heavily-funded investors who’re looking to bulk buy homes to rent out.
A report from the Wall Street Journal suggests that home builders are now looking to explore opportunities to work with investors, who’re looking to scoop up homes in batches to rent them out at a time when housing costs are accelerating. The report suggests that investors are responding warmly to the idea of working closer with builders, too.
According to the Journal, large investors have increased their cash flow to devote to housing. They have accumulated about $89 billion in capital to spend on building or buying new rental homes. To date, they’ve used about a quarter of that amount, according to Zelman & Associates, a real estate research and advisory firm, as reported by the Journal.
Investors can close on a large number of homes in a single transaction. For homebuilders, that means selling in bulk can help them turn a profit on new homes more quickly.
While the majority of homes built are sold to individuals and families, builders are growing concerned that the rising costs could lead to a pullback in demand.
As such, selling to rental investors could become more attractive to builders, especially those who otherwise sell to entry-level buyers and who may be at the most risk of becoming priced out of the market, Robert Dietz, chief economist at the National Association of Home Builders, told the Journal.
“Those potential buyers still want more space,” Dietz said. “And so single-family rental is likely to continue to show some strength.”
Investors remain bullish on single-family rental growth. An all-new home may be even more enticing to renters. In the fourth quarter of last year, more than one in every four houses purchased by a professional rental investor was a new-construction house, according to John Burns Real Estate Consulting LLC and the National Rental Home Council.