Builder PulteGroup has agreed to construct 7,500 single-family built-for-rent homes over the span of five years for single-family rental company Invitation Homes to purchase. The homes will be located across seven of PulteGroup’s communities and initial projects are located in Florida, Georgia, North Carolina, Texas, and Southern California, reports Million Acres. Million Acres notes that the partnership is mutually beneficial: Newly built homes mean lower operating costs for Invitation Homes and a highly attractive product for potential renters. PulteGroup will benefit from the agreement’s certainty, providing security against outside factors such as interest rate changes.
This certainly will reduce risk. It will also allow the homebuilder to increase its scale by investing in larger land parcels to build out bigger communities, improving its investment returns.
A high-demand housing market
Demand for SFRs is growing. More people are opting not to buy a home because they prefer the flexibility of renting. However, they still desire the space and privacy of a single-family home. That's driving up rental rates -- they rose 5.3% year over year in April, according to CoreLogic -- leading investors to pour money into the space.
While Invitation Homes is the leader at more than 80,000 homes, other investors are quickly building a large-scale portfolio by purchasing new homes directly from builders. Leading direct-to-consumer real estate investing platform Fundrise has narrowed its investment focus to include building out a large-scale SFR platform. The company started by purchasing a recently completed 124-unit SFR community near Houston earlier this year from leading homebuilder D.R. Horton (DHI). D.R Horton built and leased up the community before selling it to Fundrise.
Since then, Fundrise has concentrated on buying vacant homes directly from builders in batches as they complete construction. It's then leasing them as part of its value-add investment strategy. The platform has secured a $300 million line of credit from Goldman Sachs to help finance its SFR expansion plan. It has already bought hundreds of homes this year and has many more under contract. Overall, Fundrise expects to grow its portfolio to nearly 2,800 homes in 12 markets over the next 21 months.