If You Can’t Beat Them, Rent Them
Even as the for-sale housing market improves, the percentage of American households that rent keeps rising. What gives?
Some developers and builders, looking at this trend, have decided: “If you can’t beat them, join them.” They are marketing newly built homes as rentals.
A panel at last week’s PCBC (Pacific Coast Builders Conference), chaired by industry veteran George Casey, CEO of Stockbridge Associates, explored the opportunity.
Casey, the former CEO of Orleans Homebuilders, noted that many developers discourage rentals within new-home communities. They worry that buyers may object to living in the same neighborhoods as renters, who may not take as much care of their home. Property values may suffer as a result.
But when one of Casey’s developer colleagues surveyed buyers in his 5000-lot Tucson community he found that nearly a quarter were renters. The developer decided that he had overlooked an important opportunity to improve sales.
At least one major production builder, Lennar, now markets new homes to renters rather than buyers. Lennar opened a new community of 80 homes with six floorplans in Sparks, Nev., earlier in the year. Dustin Barker, a division president, reports that rentals of the homes, which range from 1200 sq. ft. to 2182 sq. ft., are exceeding expectations.
Residents receive the benefits of homeownership–a yard, garage, and laundry–without the commitment of a mortgage. The homes would naturally appeal to families that previously lost a home to foreclosure. But Barker says the homes for lease at Frontera “are proving to be a great option for even more demographics than we had anticipated.”
One speaker on the PCBC panel, Doug Brien, co-CEO of Waypoint Homes, buys new homes from builders and rents them back to families that can’t qualify for a mortgage. Brien, whose company is a publicly traded REIT, has bought more than 500 homes from 12 builders.
Brien structures a variety of deals with builders, depending on their needs. He will buy homes early to kick-start a new community or late to help complete it. Builders often refer to Waypoint families that shop the community but can’t qualify for a mortgage. Waypoint rewards its renters for keeping up the appearance of their homes, aligning the interests of builders, residents, and Waypoint itself. “Since we may be the biggest owner in the community, we want to make sure our renters take care of their homes,” he said.
When Waypoint began its program, most of its renter clients had lost homes to foreclosure or short sales. “That number is much smaller than it used to be, about 25%,” he said, adding that many customers are now “renters by choice.” Casey noted that the trend really marks a return to the way developers marketed new communities in the 40s, 50s, and 60s, when they would rent homes that they couldn’t sell. “This is just another way to absorb homes faster,” he said.
The panel divided over whether to establish separate enclaves of renters within new-home communities. Molly Carmichael, principal with John Burns Real Estate Consulting, recommended creating separate neighborhoods. “People like to live near people like themselves,” she said.