Founded during the Great Recession, Invitation Homes (NYSE: INVH) has slowly expanded its portfolio of single-family rental homes across the United States since 2012. It now owns and operates 80,000 homes across 16 markets and is the largest operator of single-family rental homes in the country.
With some analysts forecasting we could see an uptick in foreclosures and distressed homes next year, is there an opportunity for Invitation Homes to purchase more homes and grow its portfolio? The company seems to think so. It recently announced it has formed a $375 million joint venture with Rockpoint Group to acquire single-family homes and operate them as rentals. Invitation Homes will contribute $75 million, and Rockpoint will put in $300 million. But that's just the start. The joint venture eventually plans to deploy over $1 billion to buy and renovate homes in the West and South, where Invitation Homes is already strong.
Rockpoint Group is a Boston-based real estate private equity firm that has invested billions in a variety of large-scale commercial real estate projects. It tends to focus on larger buildings in major coastal markets in the United States. Invitation Homes will collect asset management and property management fees for managing the joint venture and have the chance to earn promoted interest after the fund hits certain performance thresholds.
What this means for investors
There are several key takeaways for investors. First, this is good news for investors in Invitation Homes. It shows the company is thinking strategically about the upcoming market. Interest in single-family rental homes is expected to increase as the ongoing COVID-19 pandemic makes people more likely to want to spread out and minimize contact in shared spaces.
For house flippers and rental property investors, this is a signal of potential competition if you're hoping to find opportunities in a changing market. During the Great Recession, Invitation Homes moved very aggressively, purchasing around 50,000 homes during a four-year period and spending $8.3 billion. A foreclosure crisis in the coming year could mean individual investors will likely be competing not only against Invitation Homes but also perhaps against iBuyers who may receive a lot of inquiries from homeowners about to face foreclosure and seeking a fast exit.
If there is a foreclosure crisis, this time might look far different because there are more players, including Invitation Homes' competitor, American Homes 4 Rent (NYSE: AMH), amassing capital and able to purchase homes in bulk. And Nuveen Real Estate (NYSE: JRS), a large real estate investment company that previously partnered with Airbnb, is sinking $400 million into Sparrow, a new single-family home rental platform. What all of this could mean is we won't see home prices tumble as dramatically as during the last crisis.
It's also important to note where Invitation Homes will center its efforts. The company has focused on suburbs outside major metropolitan areas, especially in fast-growing cities in Florida and Texas. By only actively buying in a set number of markets, Invitation Homes can increase its knowledge of prices in these areas and also potentially freeze out some smaller competition. Invitation Homes is betting on these markets because it studies migration and demographic trends. Individual property investors may have to choose between facing the competition in a hot market or opting for a market where the potential for high rents or a big profit flip may be lower.
The Millionacres bottom line
According to the Census Bureau, the current homeownership rate in the United States is 67.9%, which means nearly a third of the country rents their homes. If home prices continue to rise -- and interest rates eventually go up as well -- that could make renting even more attractive to younger people. Invitation Homes benefited from the last large-scale buying opportunity and plans to do the same again. The challenges: far more competitors this time, and prices may not sink as low as they did eight years ago.