Rental property investors are shifting their efforts toward the Southeastern U.S., with Florida, Texas, and Georgia making up the bulk of acquisitions, according to an RMBS research report released by Morningstar Credit Ratings on Friday.
According to the report, the shift is due to changing securitization trends—as well as investors being more selective in their purchases.
“In the infancy of securitized single-family rentals, institutional investors could acquire distressed properties at discounts through bulk purchases and auctions,” MorningStar reported. “However, a generally improved housing market, including sustained house price appreciation, has resulted in fewer of these buying opportunities. Thus, institutional investors must add assets selectively, likely through multiple listing service purchases.”
This selectivity has caused investors to shift focus toward the Southeast, where “lower acquisition costs and more attractive yields” reign supreme.
In 2016, Florida saw the most single-family investment acquisitions, with more than 776 over the year. Georgia (677), Texas (553), North Carolina (346), and Indiana (239) rounded out the top five.
“Property purchases in California, Arizona, and Nevada were more prevalent in 2012 to 2013, while Texas, North Carolina, Tennessee, and even Indiana had more institutional acquisitions from 2014 to 2015,” MorningStar reported. “Florida has been among the top states for acquisitions annually since 2012.”
Over the past five years, Florida has seen the most acquisitions with more than 25,000 since 2011. Texas came in at No. 2 with 15,638, followed by Georgia (15,355), Arizona (10,811), California (10,132), and North Carolina (9,383).
“Florida properties accounted for greater than 20 percent of acquisitions,” the report stated, “and Georgia was consistently above 10 percent. However, Texas, North Carolina, Tennessee, and Indiana acquisitions picked up in more recent years, while those in Arizona, California, and Nevada dropped off.”
Whether the shift continues will depend on future SFR securitization trends, as well as a number of market factors, according to the report.
“Institutional issuers of single-family rental securitizations consider several factors when purchasing properties, including the acquisition channel, the costs associated with the purchase, initial rehabilitation and ongoing maintenance, gross and net yields, and potential home price appreciation,” MorningStar reported. “Single-family rental issuers also consider economic factors like regional employment, income, and demographic factors such as school-district rankings. Changes in these considerations will affect the geographic makeup of securitized pools.”
View the full report at MorningStar.com.