Today’s headlines are filled with stories of record home price appreciation and surging housing demand. But housing, of course, is notorious for its cycles. Though we are riding a tremendous wave, there are always risks ahead we should consider. One the sharpest minds in the industry is constantly assessing these risks, in between notes on her favorite gas station Chardonnay. On the latest New Home Insights podcast episode, we talk with Melissa Abel of Texas Capital Bank. Here is a quick look at some of the things that keep her up at night—and how we might solve them.
Where the Risk Is
- Are we stealing from tomorrow’s demand by feeding into today’s great market conditions?
- The build-for-rent space (BFR) is booming, but finding the right operators who are specialized, integrated, and well built to withstand possible oversupply is tough. See below for more details on what BFR is and who the renters are.
- The size of the build-for-rent pipeline is unclear, risking accidental oversupply.
- The future is unpredictable. Home prices are increasing at alarming rates, but relying solely on the accelerated demand we are experiencing is extremely risky.
How to Reduce the Risk
- Although eating into future demand is a risk, today’s very limited supply helps to combat this risk.
- Focus on doing business with people you trust. You want to trust the judgement and capabilities of your clients and operators.
- Ensure proper, competent management at projects you invest in.
- Diversify the geographies you are in.
- Maintain an adequate level of liquidity.
The Future: Build-for-Rent (BFR)
- The BFR space has matured and prospered in recent years, and Melissa is optimistic about the future of BFR (with the right operator).
- What is BFR? Detached home and townhome neighborhoods built specifically to be rented out, as opposed to sold.
- BFR communities are popular among renters who prefer to rent but want the benefits of extra bedrooms, yard space, a garage, and increased privacy typical of BFRs relative to apartments.
- BFR communities are an appealing choice over the more common single-family rental product given their new construction, professional management, and amenities.
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