Prior to the subprime mortgage crisis, countless would-be investors and flippers purchased millions of distressed homes, turning some of them into lucrative rentals.
What was once a novelty became and movement, filled with television shows and Instagram posts, as people scrambled to become house flippers, calling themselves investors.
Foreclosures, however, are now few and far between. Distressed properties, which include foreclosures and short sales, compose just 2% of home sales today, off from a high of 49% in March 2009, according to the National Association of Realtors. The regular existing home market is exorbitant, so investors are now turning to a new strategy: Buy new. And suddenly, the so-called build-to-rent market is exploding.
This week a small Tampa, Florida-based builder, ERC Homebuilders, is launching a “soft” IPO, aiming to raise $100 million to create more than 1,000 rental homes across the state. It is tempting investors with private shares using Regulation A+, a form of investment crowdfunding that permits small companies to raise limited funds from the general public. Both accredited and non-accredited investors can take part.
“There is a consumer rental demand that is driving these institutions to want much greater levels of inventory of this product,” said Gerald Ellenburg, CEO of ERC Homebuilders. “They are learning or have learned that new inventory is a much safer and more official rental product.”
An assortment of companies have become involved in the build-to-rent or B2R space recently, as developers create entire communities of newly built, detached rental homes. Often the amenity package at these communities rivals that of traditional single-family for-sale neighborhoods. It’s a trend that is projected to continue as consumers struggle with higher interest rates, higher home prices, and a limited supply of homes for sale. Or simply prefer to rent. Toll Brothers is one such company.
“It’s viewed as an ancillary income stream. We see this as more and more renters may prefer to raise a family or live in a single-family home versus an apartment complex or community or building. And so it is part of our Apartment Living group,” Toll Brothers CEO Douglas Yearley said on the company’s second quarter earnings conference call last month.
For investors looking to get involved in the homebuilder space, the iShares U.S. Home Construction ETF (ITB) is the largest ETF that tracks homebuilders. The SPDR S&P Homebuilders ETF (XHB), and the Invesco Dynamic Building & Construction Portfolio (PKB) are two other options.
Bullish traders can look to the Direxion Daily Homebuilders and Supplies Bull and Bear 3X Shares (NYSEArca: NAIL) that seeks daily investment results, before fees and expenses, of 300% or 300% of the inverse (or opposite) of the performance of the Dow Jones U.S. Select Home Construction Index.
For more investing trends, visit ETFtrends.com.
