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The return of Mom-and-pop landlords

March 20, 2023

Rise and shine! It's a new day and The Shaker is here to serve you the best mix of residential real estate news. Yummy yummy.

THE BIG SPLASH

The return of Mom-and-pop landlords

What you need to know:

  • Despite a dip in iBuying and larger investor demand, the share of investor purchases of single-family homes remained steady in the fourth quarter of 2022, according to a report by CoreLogic.

  • Investment buyers purchased on average 81,000 homes, a 25% decline in activity when compared with the purchase activity observed in Q4 2021.

  • Mega-investors’ share fell from 11% of investor purchases in September to 9% in December

  • In that same time frame, the small investor - aka Mom-and-pop landlords - share rose from 45% to 48%.

  • Housing demand declined for both investors and owner-occupied buyers fairly evenly, with both likely deterred by high prices and elevated interest rates.

A SCOOP OF INVESTMENT STRATEGY

Why I stopped buying rental properties and invested in REITs instead

Jussi Askola, author of “High Yield Landlord”, who previously invested in private equity real estate, now believes that publicly listed real estate investment trusts (REITs) offer better returns with fewer risks and hassles. 

  • REITs offer higher returns in most cases than private real estate investments.

  • REITs also enjoy leverage and tax benefits, making them more tax-efficient than rental properties. For instance, rental property investors can defer taxes through depreciation but face a huge tax bill if and when they sell the property.

  • REITs are highly tax-efficient as most returns come from growth and appreciation, which is tax-deferred.

  • Rental property investors overestimate their returns by failing to account for the value of their time and work, and by comparing returns during good years only. REITs are more cost-efficient than rental properties, as they own hundreds or even thousands of properties, which allows them to save money on everything from property management to brokerage.

  • Rental properties are more heavily leveraged than REITs, which means they lose a larger portion of their returns during downturns.

  • While REITs offer more stability than rental properties, it's important to note that investing in REITs is still subject to market risks.

A SCOOP OF STUDENT HOUSING

Fractional Ownership is Making Student Housing Accessible to Retail Investors

  • Student housing is attracting attention from real estate investors, including institutional players, due to its strong performance during economic downturns.

  • Fractional ownership has emerged as a way for retail investors to gain exposure to student housing, allowing multiple investors to collectively own a single property or a portfolio of properties without having to deal with issuing stock to the public.

  • Unlike retail, office, or industrial properties, student housing didn't traditionally offer the same shine as an investment hedge. Still, it has become more institutionalized in recent years, with larger investors, REITs, and private equity firms investing in the sector.

  • The confidence in the student housing market has swelled, with increased demand as college enrollment bounces back from the pandemic slump, potential for higher returns, and a stronger guarantee compared to other multifamily assets.

  • Collabhome.io is one of the first to open up fractionalized ownership to off-campus housing, allowing every U.S. resident 18 years of age or older to invest as little as $500 in one of their student housing projects.

  • Overall, increased investor interest in student housing suggests that it is no longer a niche asset class, and fractional ownership reflects a shift towards more accessible and inclusive investment opportunities in the industry.

A SCOOP OF MARKET DATA

Where to Find the Biggest (and Smallest) Apartments in the US

  • The average size of new apartments built in the US in the past decade is 934 square feet, which is 8% smaller than those built ten years ago.

  • The ten US cities with the smallest apartments are Philadelphia, Boston, Washington DC, Silver Spring, St. Paul, New York City, Miami, Baltimore, Chicago, and Pittsburgh.

  • The ten US cities with the largest apartments are Tallahassee, Gainesville, Mobile, Knoxville, Marietta, Lubbock, Greensboro, Tucson, Henderson, and Columbia.

  • The average size of the new apartments in Tallahassee is 1,182 square feet, which is the largest in the US.

  • The average size of the new apartments in Philadelphia is 780 square feet, which is the smallest in the US.

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