Welcome to today’s SFR Roundup! Where Renters Warehouse’s Noel Christopher discusses the single-family rental (SFR) space, the housing market, and shares some general thoughts on the economy.
As Senior Vice President of Portfolio Services, Noel’s focus with Renters Warehouse is working with small to midsized investors. And in this exciting podcast, he discusses Millennials, the recession narrative –and what’s really going on with the housing market.
Lately, there’s a lot of talk about how we’ve been in the longest expansion period ever, which means, they say, that it has to end sometime.
But is that necessarily the case? Noel, for one, isn’t quick to agree.
The narrative that the Great Recession in 2008 was caused by housing –is false, he explains. Instead, it was caused by a confluence of events that happened, and many of those were the lack of respect for risk. This was the case for people who were buying houses as a flipper or speculatively; as well as for the banks who were underwriting car loans, commercial loans, and equipment loans, the bond market; along with lax underwriting standards, lax standards with the government, and oversight of the banks –all of these things together caused the recession. The housing market was a part of that.
That burned a lot of investors. A lot of people lost a lot of money in the last recession and have vowed never to do it again.
This is unfortunate, though, as opportunities abound right now.
Millennials: The Largest Group of First-Time Buyers
The largest group of homebuyers are now coming to age: Millennials.
Noel explains that while many of them have postponed buying homes, getting married, having a family –and are renting –they’re starting to grow up now, and you can’t stop the tide of this generation growing up and starting to buy houses.
By the end of 2018, 45% of all new homebuyers were Millennials.
Just because they’ve been choosing to rent, doesn’t mean that they’ll continue to rent, many might choose to buy.
Up until 2009, the U.S. has built about 1.5 million homes a year, but since 2009, we’ve only built 900k homes a year.
There aren’t enough homes.
That’s why, Noel says, he’s not expecting to see a housing slump, or housing crash anytime soon. There’s still strong demand, and supply isn’t keeping up.
In fact, Noel mentions that Stephen McBride, editor of The RiskHedge Report says we’re in one of the biggest booms in housing in a long time –and that’s largely due to Millennials coming of age.
And there’s no longer a stigma attached to renting.
There’s a lack of housing, and Millennials are moving into secondary or tertiary markets.
They want to live in a house in a nice community, with jobs, where they can live, work, and play.
This is giving rise to Hipsturbia, so investing in the far-out suburbs in the middle of nowhere is more risky.
There’s no need to be inside a metropolitan area, although being outside of one certainly doesn’t hurt.
So pay attention to where you invest. Communities that can build great areas where people want to live, work, and play are likely to continue to grow in demand.
Recession Narratives and Opportunities to Invest
Noel mentions Robert Shiller, author of Narrative Economics.
In Narrative Economics, Shiller touches on the subject of recession narratives, and how you could have an economic narrative go viral, and that can cause people to pull back. In some cases, this can even move markets. So that’s always a fear.
It’s worth looking into this. It’s interesting stuff.
Just because someone says, “We’re going into a recession,” doesn’t necessarily mean it’s so. Always verify.
Noel mentions an article by Stephen McBride on Forbes. His article, The Biggest Housing Boom in History Has Just Begun breaks down how those who are in-the-know are seeing how the lack of supply has opened up a ton of opportunities for the housing market and companies that service the housing market.
If you’re investing in stocks and aren’t sure where to invest, maybe look into investing in companies that are selling gravel or concrete, Noel says. Housing foundations, roads, and sidewalks, things that are needed for infrastructure and homes.
As a real estate investor, look to tertiary markets. At Renters Warehouse, Noel works with a number of funds that are investing in real estate all across the country. There are some great markets out there and still great opportunities to be had.
For markets that have become unaffordable because of appreciation, and housing costs, look to secondary markets; Oklahoma City OK, areas around Birmingham and Huntsville AL.
Look at the southeast, Greenville and Columbia SC, Augusta GA, and all of these areas. They have low costs, great jobs, good housing opportunities, and Noel’s been seeing investors who are going there to buy.
Noel says that smaller investors have an excellent opportunity to compete with the larger investors, because while they may have more money and a lower cost of capital, because of their scale they have higher overhead and it’s a little bit harder for them to be nimble when it comes to investing in these fringe areas.
Noel works with investors who are looking to acquire real estate. His experience puts him in touch with plenty of investors who are looking to buy, and finding there’s just not properties available. Demand is still very, very strong.
What type of markets are investors looking for? Areas with inexpensive land and lower-cost areas, if they also have good job opportunities, are in-demand.
Noel also notes that builders are now building a certain percentage of homes to sell as owner-occupied, building to sell to other investors to put renters in there, or building and holding themselves. So they’re seeing the long-term benefits of real estate as well.
Noel advises investors to be judicious and careful with underwriting, and careful when considering historical appreciation, say the last 5-10 years of appreciation. The past appreciation has been at the low point of the market, and we’ve gone up from there. That’s not always a good gauge of what the future appreciation’s going to be. Housing prices have increased an average of about 3.62% per year since 1996 or 1998, says Noel. Anything above that is usually a fluctuation.
Noel says even if you’re buying rentals now and investing long-term for five or more years, you don’t need to worry so much about what the stock market’s doing today or tomorrow. What does that have to do with real estate values? The stock market might crash tomorrow, and real estate may fluctuate in certain areas, but we’re not in a scenario where real estate’s just going to crash. Real estate’s traditionally always rebounded.
People associate a recession with real estate values have to crash, but Noel emphasizes that it depends on your market.
There’s risk with investing in the upper ends of the market, say Miami, Seattle, and San Francisco –but are overheated housing markets going to drag down the entire market?
Noel doesn’t believe that’s the case. He mentions that people buying homes now actually need homes to live in; it’s not as speculative as it was before the last recession.
Free Resources
At Renters Warehouse, we’ve been focusing and provide education and raising awareness about this space and on what’s happening.
Head over to our website and find a property that’s on the MLS. Then visit our Research Center and see historical appreciation in markets across the country.
Note: Want to see what’s happening in business, finance, and the real estate market? Noel recommends the following websites:
There are a lot of resources out there, and lots of exciting things happening in the markets.
It’s never been a better time to invest in real estate. If you’re afraid of a recession, and a lot of your equity is tied up in the stock market, consider whether some of that would be safer in real estate –as a safer, longer-term investment that can give you dividends.
Noel gets a lot of information from:
- Gary Vaynerchuk
- Jake Dunlap
- Brian Burnes
Everyone’s offering so much free information, so if someone’s trying to get you to pay for real estate investing, beware of that. There’s a lot that’s available for free.
We’re in exciting times!
So stay tuned for future episodes; we may be having guests soon!
Comment, subscribe, or reach out. And if you’re an investor and would like to sell your portfolio, reach out to Noel today.
Visit Renters Warehouse’s YouTube channel.
Or browse the Renters Warehouse Blog –A FREE educational resource that’s packed full of practical investing advice and exciting news in the state of the housing market.
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