Real estate investment trusts, or REITs, have historically invested in multifamily residential real estate, not single-family homes. However, that has started to change in recent years. In this Fool Live video clip, recorded on Jan. 21, Fool.com contributor Matt Frankel breaks down what investors need to know.
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Matt Frankel: But just to give you some statistics about these companies and why the build-to-rent model and the single-family rental model is so popular these days. Invitation Homes (INVH 0.48%), ticker symbol I-N-V-H. They are the biggest single-family real estate investment trust. They have about 80,000 homes in 16 different markets.
Over the past 12 months, their new lease spread, meaning, when someone vacates a home and then they release it, the difference in rent is 16%. As home prices have soared, so have rental rates. The average renewal lease rate is 8%, meaning if someone just chooses to renew their lease, they're going to be paying eight percent more than they were a year ago. That's a historically large releasing spread.
The economics are fantastic here. They bought almost 1,700 homes in the third quarter alone. Obviously, when you can charge 16% more in rent than you could a year ago, your cash flow is going to jump dramatically. It gives you more capital to expand the business, and that's what we're seeing here. American Homes 4 Rent (AMH 1.41%) is build for rent. They have relationships with homebuilders, and they're seeing very similar numbers, the releasing spread is 16% year over year with them, and just to show how optimistic these companies are in the market, Jason will love this.
This is from their presentation as well. Look at the headline of this slide. What's their strategic priority? Grow, grow, grow, period, the end. They see such an opportunity here. To grow, grow, grow. Look at 2019, 2020, and 2021. Their inventory additions, meaning the homes they've had built to rent, have roughly quadrupled over that period of time. This is a rapidly growing, as you said, it was a niche market and it's fast becoming a core business model for a lot of these companies; the build-to-rent and single-family rentals is becoming very institutionalized.