The single-family interest house as a new trend?

24 Sep.

Single-family homes represent the world's largest asset class and, among real estate, are also the most widely used form in Austria and Germany.

To date, investing in and renting out single-family homes - hence the term "interest single-family home" - has not been big business.

However, that could now change, for the following reasons:

Rising demand: Even many high-income earners can hardly afford property at the current price level. The tightening of financing guidelines (see, for example, Prof. Dr. Gramann's article here ' ) also contributes to this problem. I do not see a rise in prices in the coming months, as a good part of the real estate industry would like to see (see article "Immotrends 2023"). But I also do not expect prices for real estate including EFH to plummet dramatically. Thus, numerous previous potential EFH buyers will now (inevitably) become EFH renters. To live in an EFH, especially with a garden, in the green outside the city center, with enough space for family and front door, will remain the desire of many people. And will not simply be replaced by a city apartment.
Good returns: Unlike non-profit housing or apartments in multi-party houses, rental single-family homes ("EFH") are subject to virtually no restrictions under rent law. Up to now, there has been supply in this segment mainly in the luxury and high-end segment, which meets with solvent tenants such as diplomats, top managers, and the like. And provide nice returns for landlords. Good returns are also achievable in the segments below, especially since demand will increase as mentioned above. In the USA, "EFH" are considered by far the highest-yielding asset class, with returns of up to 20%.
Investors are already jumping on board: Until now, EFH was considered high-yielding, but too small-scale and therefore virtually uninvestable for larger and institutional investors. This has changed, starting in the USA: Starting with Blackstone, the world's largest asset manager, other major Wall Street investors such as Goldman Sachs and KKR are now investing in the "single-family homes" asset class. While the investment was still at USD 3 billion in 2020, it already rose to USD 45 billion in 2021. The thousands of homes held by these are being refurbished with new flooring and plumbing and also modernized, for example with smarthome technology. These amenities are also attracting better-off tenants. This trend is also spreading in other countries such as the UK, Germany, Ireland, the Netherlands and Scandinavia (see also article in ECONOMIST ' ).

Considerations and challenges for investors

Limits to growth: Despite rising rents in this segment as well, this trend will not continue in the long term, but will level off. On the other hand, thanks to inflation-linked and longer rents, residential rents are robust and fluctuate less in economic cycles than "property" or "office" rents.
Cost uncertainty: rising interest rates, inflation and an uncertain economic outlook mean that the cost of construction, renovation and maintenance is rising.
Opportunities: Rising interest rates mean investors also need to monitor alternatives such as bonds, which may offer more return with less risk and expense.

In summary

Despite these challenges, I think the "interest single-family home" is a highly interesting asset class for investors - even institutional ones.

Would you like advice on this topic? Or are you looking for a professional partner to help you put together an EFH portfolio? Then contact me '