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» VISIT US ONLINE @ DSNEWS.COM COVER STORY COVER STORY INDUSTRY INSIGHT MARKET PULSE "This is an asset class. You need to buy it right. You need to have a revenue model for it and an operational model for it. It needs to be purchased, refurbished, and it needs to be, of course, rented." —Ron D'Vari, NewOak Capital POINT— COUNTERPOINT I n the first quarter of 2013, the U.S. Census Bureau reported the national homeownership rate dropped to 65 percent—its lowest level since 1995. Coinciding with this trend is recent research released by the Joint Center for Housing Studies at Harvard University. In their report titled "The State of the Nation's Housing in 2013," the Center's researchers found from 2007 to 2011, 2.4 million homes transitioned from owner-occupied to renter-occupied. Many consumers are unable to obtain a mortgage or lack the funds for a down payment, and some are finding it hard to embrace homeownership after feeling the effects of the subprime meltdown firsthand or witnessing it play out in their neighborhoods. Add to that the 4.5 million or so households locked out of homeownership at least in the near-term because their credit reports now include a foreclosure, and all signs point to a burgeoning rental market. Apartment living, however, may not be an adjustment many consumers want to make, particularly those who were previously homeowners. Enter the single-family rental home. With so many Americans either not able or not willing to enter homeownership, single-family rentals are an increasingly tantalizing option. The U.S. consumer's growing demand for rental properties did not escape the notice of institutional or private investors, who responded by looking to the distressed marketplace for rental property opportunities. Even the GSEs got into the act with the 2012 launch of the Federal Housing Finance Agency's Real Estate Owned Initiative. According to a report earlier this year by Goldman Sachs, with foreclosed homes typically selling for 30 percent below the price of other properties, they offer investors greater potential for higher yields. For example, Goldman says the yield on an REO home in Las Vegas—even after considering vacancy rates, taxes, and insurance—is 8 percent versus 6.2 percent for a non-foreclosure rental home in the area. Data from Fannie Mae's economics team show from 2005 to 2010, single-family units as a share of the renter-occupied stock grew from 30.8 percent to 33.5 percent, the largest increase among all rental property types. Analysts from Fitch Ratings reported in February that current estimates suggest $6 billion to $10 billion of new money has been invested in single-family rentals. According to CoStar's Mark Heschmeyer, within the past two years alone, more than 65,000 single-family REO assets were picked up by investors looking to profit from the disconnect in pricing and former value. Heschmeyer notes, however, that because of the short time frame these ventures have operated, there is limited rental operating history and even more limited exit results for new potential investors to weigh the still-untested concept. 51