Single Family Rental (SFR) is a segment of the market that has gained momentum through 2020 and gained momentum over the past year. The growing millennial demand for single family homes coupled with an extremely competitive buying market means that renting a home is the only viable option for many. With this interest, investors who have already been in the area are expanding their portfolios quickly and new institutional players are buying or building entire districts to turn them into rental apartments. For brokers and authors, This room looks more and more attractive as a means of filling their pipeline with volume that is being lost through refinancing.
As attractive as the space is, originators should know that when they get into SFR lending they are entering a tight market. Institutional players are overwhelmed in some markets and housing stocks are still scarce. Many landlords are concerned about eviction moratoriums and speed is of the essence. To find out how mortgage professionals can advance in this challenging market, MPA spoke to Darel Daik (pictured), CEO of Noble Mortgage & Investments in Texas. His firm, which specializes in hard money loans for investors, has been in the red-hot SFR market in Texas for nearly two decades. He believes there are many opportunities in the SFR space for those who can beat the big boys.
“There has certainly been a greater influx of competition on the investment side, whether that’s the case hard money or those incomeless lenders put together by hedge funds, ”Daik said. “They’re trying to gain market share, but they just can’t keep up when it comes to customer service and the speed at which a lot of these deals are done.”
Daik stated that the shortages of housing in Houston and Dallas, its two key markets, allow a private lender like him to hold their own. With only 1.6 months of housing stock in Houston and even less in Dallas, sellers want a deal that can be completed extremely quickly. As a hard money lender, Daik said he could get loans out in less than a week, much faster than those hedge funds can move.
Additionally, Daik’s model does not require serious down payments from the borrower, which allows them to act faster unlike some more institutional actors. His experience in the market also enables him to reassure worried customers.
The Extension of the eviction moratoria This was announced at the beginning of the pandemic, for example it made some investors and landlords nervous. There is hardly any reason for Daik to do so. His SFR clients have seen minimal problems with tenants unable to pay and while he believes there may be some market-specific causes behind this, he notes that there is currently no shortage of good tenants who can pay solid rents .
For originators and brokers looking to work in the SFR market, Daik explained that slightly different skills are required. For example, the details of qualifications become more complicated as an investor expands their portfolio. Underwriting also requires a complex element tied to the nature and business prospects of the portfolio. While the competition is fierce in space, Daik believes that an accomplished creator can follow his example and move faster than the great players.
In the end, one of the most important things Bill of Sale has in common with working in the SFR space will be a single endemic problem: supplies.
“The market is really good, but there isn’t enough inventory,” said Daik. “We are dealing with less than two months [of inventory] in Houston and less than a month in Dallas. Many investors have therefore turned to new construction in order to compete with it. The biggest problem we hear complaints about from borrowers is that they are having a hard time finding a viable property and that prices have risen astronomically over the past year. “