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Rental Property Loans

Rental Property Loans Provide Opportunity for Brokers

Single-family home rentals have been the fastest-growing segment of housing over the past decade, according to a RENTCafé report, which examined the housing markets in America’s top 30 cities — presenting an opportunity for brokers offering rental property loans.

Since 2006, the number of Americans living in rental properties has soared to nearly 37%, the largest amount since 1965, according to a January report by Multifamily Executive. The housing trade publication also reported that over a 10-year period ending in 2016, the number of households lived in by owners declined from 76.1 million to 75 million in the aftermath of the housing crisis, according to Census Bureau data.

Is It a Lack of Funding or a Lack of Interest?

Part of the reason for the growth in rental housing is that many home-buyers encountered difficulty in securing home mortgages following in housing market crash of the mid-2000s. Banks, fearing getting burned and hampered by Dodd-Frank regulations, turned off the spigot.

At the same time, Millennials began to come of age, and they have not shown interest in the traditional suburban lifestyle and commuting far distances for a white picket fence and the property maintenance that comes along with home ownership. Typically, Millennials have not been savers. They prefer the convenience of proximity and tend to spend their disposable income more freely than generations past. Thus, they have not been able to buy their own homes or have not been willing to invest in owning a home even when they could afford to do so.

Inventory Constraints Drive Single Family Rentals

The resistance and/or inability to purchase homes, combined with a shortage of new homes, has resulted in increases in rental properties. According to RENTCafé, the overall number of single-family rentals grew by 31 percent (3.6 million units) from 2007 to 2016. At the same time, multifamily rentals grew by 14 percent (3.2 million units).

Financing for Rental Property Loans Take Off

The growth of rental property loans presents opportunities for investors looking to purchase non-owner occupied properties for their rental income value. Funding sources for such acquisitions have grown, and non-bank specialty finance companies that offer rental property loans have taken market share from traditional banks.

Non-Bank Lender Share of Mortgages

From 2010 to 2016, specialty finance companies increased their share of total mortgages from 10.5 to over 49 percent.  The growth in rental property loans and the ease of migrating from owner-occupied home mortgages to non-owner occupied rental property loans has enabled many brokers to expand their business offering, creating a new revenue stream.

Additional Resources

Residential 1-4 Investment Property Financing