Demand for single-family rental homes has never been stronger and, consequently, more investors are hoping to get in on the game.
From large institutions buying thousands of homes to individual investors hoping to see strong returns on just a few properties, the competition is high. And so is the risk, especially for novices.
New companies hoping to help investors in every phase of the process — and cash in on their growing demand — have ranked large local markets for potential returns. Now, one claims it can gauge right down to the neighborhood level.
Roofstock, an online single-family rental marketplace, is launching a "neighborhood rating algorithm," analyzing more than 72,000 separate Census tracks and ranking their risk. It goes beyond home values and average rent to include dozens of factors, such as income levels, employment rates, education levels, percentage of owner-occupied homes and school district ratings. It then ranks each neighborhood on a scale from 1 to 5, 1 being the most risky.
"As with any investment, whether it's real estate or a stock or bond, you need to compare risk with return, and so what we've done with our star system is created a metric for estimating risk, which is really a measure of volatility or variability of your return," Roofstock CEO Gary Beasley said. "So if you're investing in a 4-star or 5-star neighborhood, your returns might be a little bit lower but your returns might be a little more predictable. There might be a little less variability."