Most investors look at residential rental property as a long-term investment. The cash flow stream, home price appreciation and tax benefits are attractive to those looking for alternatives to traditional investments like stocks and bonds.
But traditionally, they have had limited access financing.
Fannie Mae and Freddie Mac limit the number of investment property mortgages to one investor at four and 10, respectively. Agencies will cut the number sooner if a borrower does not have the personal income to qualify, which is often, says John Beacham, president of B2R Finance.
So how do brokers of these small investors find financing for their clients?
Cue in investment fund giant Blackstone Group’s B2R Finance. The company is one of a few in the country that focuses on lending money to landlords interested in expanding their single-family, home–to-rent portfolio. They finance residential rental properties, including single-family, small multifamily properties, condos and townhomes.
“Our leadership team has a long history of working with residential investors and their brokers, and we saw many brokers who, after financing one or two properties for their client, had to give up the relationship because they couldn’t find them financing,” says Beacham. “Our product provides brokers with more tools to help their clients – they don’t have to turn away buy-to-rent investors any longer.”
According to Beacham, buy-to-rent investors will purchase an average of seven times the number of properties as each owner-occupied borrower. Not only does this product line help with client retention, but it also results in a lower customer acquisition cost for brokers by having continuous repeat business.
Beacham has spent nearly 20 years in finance and was joint head of the single-family rental finance business within Deutsche Bank prior to joining B2R.
“When the GSEs were in crisis, it left a gap. B2R bridges the gap with a commercial product for the residential market,” says Beacham. He adds that the American mortgage market is behind when it comes to financing single-family investment properties. In Australia, investment properties make up 25% of residential mortgages, 15% in the U.K. and 6% in America. Meanwhile, one- to four- family investment properties represent 20% of the U.S. residential market.
B2R offers loans of up to 75% of home values for pools of leased properties. The company’s minimum loan size is $500,000, and it has spent the last year financing investors with five or more rental properties.
Beacham says B2R is continuously developing financing options to service investors of all sizes. He adds that the company fills a void in the marketplace. Unlike traditional residential mortgages, B2R primarily underwrites to the cash flow of the property.
A strong factor driving investor appetite for buy-to-rent homes are millennials. Home ownership among those 35 and younger has fallen from 43.6 percent to 35.9 percent during the last 10 years, according to Freddie Mac.
“Millennials don’t want to buy yet. They are getting married later and are much more mobile than previous generations, so home ownership is being delayed,” Beacham says. “The combination of demographics more inclined to rent and a favorable investment environment make us very optimistic about the future of buy-to-rent investing.”
During the last few years, around 4.5 million homes have been sold and converted to rental properties with the majority owned by small investors. This growing group of buy-to-rent landlords is cashing in on the share of Americans that prefer to rent instead of own.