As the population in the Valley grows, so does the demand for rental property, especially single-family homes. That demand is leading some investors to experiment with some new types of rental communities.
Like many metro Phoenix residents today, Elizabeth Rogers isn’t originally from Arizona.
"I actually moved here from upstate New York," Rogers explained.
Today she’s renting a place in Chandler. And for now, a tan, two bedroom, stucco house is home. Rogers likes her granite counter tops. Her pug and dachshund have taken a particular liking to the gravel back yard. But Rogers’ favorite part of the property is that her unit stands by itself.
"I’m probably at the age where the noise and the distraction of people above or below or next to is really more of an annoyance," Rogers said.
There are several reasons Rogers decided to rent instead of buy a home when she moved to the valley, but the biggest is financial flexibility.
"I wasn’t sure what direction my life was going to go when I moved here as far as how long I was going to be here," she said. "So renting was the best option."
And Rogers isn’t alone. Demand for single-family home leases is strong right now. According to the U.S. Census Bureau, renter occupied single-family homes increased about 14 percent between 2009 and 2013, going from 9.6 million nationwide to just over 11 million. And real estate investors have taken notice.
"We’ve been through a lot of phases over the last few years. As the recovery is now complete," said Arizona State University real estate analyst Mike Orr. "But we’ve ended up with a lot of people wanting low end homes."
Orr added that market is seeing more investment in the form of private equity firms and real estate investment trusts. The trend started around 2012 when the market was still filled with cheap foreclosures from the housing crisis.
"It basically started and it was all over in about 18 months," explained Orr.
It’s happening all over the country, especially in Phoenix — one of the areas hit hardest by the housing crisis. But things have changed since 2012, and the market is starting to rebound in the Valley.
"It’s very hard to find a bargain below about $250,000," Orr said. "And a landlord wants to buy a home at the lowest possible price and then rent it out at the highest possible rate."
These investors are still hoping to grow though. But faced with shrinking profit margins, some are now looking to options outside of the existing home market.
"So if they can’t buy them they have to actually build them," Orr said.
It’s a relatively new business model, but one that’s catching on. In Lawrenceville, Georgia, Starwood Waypoint Residential Trust is buying property directly from builders in a new development just outside of Atlanta. But others are taking it a step further and contracting with builders to construct entire neighborhoods. Lennar Homes recently completed a new rental neighborhood near Reno, Nevada. And in metro Phoenix, NexMetro is about to complete construction on its third development of single-family homes, all zoned to be leased.
"A part of our business plan is to go into about one market per year," said Josh Hartman, NexMetro's executive vice president. "So right now I'm flying up to Denver. We’re looking at Atlanta."
By working directly with a builder, investors can have more control over the cost of materials. But Hartman added the neighborhood concept has other benefits too.
"What we’re doing is putting 120 to 150 units, brand new, in one location and so our maintenance costs are a lot lower," he said.
Rather than sending maintenance crews to properties that are miles apart from each other, a neighborhood allows them to stay in one area, saving money on gas and other travel costs. Hartman adds, the business model also makes it easier for them to invest in things like energy star ratings.
"It’s definitely a focus of ours," said Hartman. "To try and keep efficiency high."
Real estate analysts say while no trend is permanent this demand for single-family rental homes will be sticking around for the foreseeable future.
Back in Chandler, renter Elizabeth Rogers said after 15 months in the area, she doesn’t regret her decision not to buy a home because she’s actually planning another move, this time to Florida. And when asked whether she'd be looking for another single-family home to rent again, her answer was an emphatic, "Absolutely".
