How to invest in single-family rentals without buying a house

Kseniya Ragozina | Getty Images

Small investors who might not have the funds – or the stomach to be landlords – have a new option to get in on the lucrative single-family rental market.

Fundrise, which started in 2012 as a crowdfunding platform for commercial real estate, is broadening its scope to single-family rental homes. Investors can get in for as little as $500.

Thanks to a new $300 million credit facility from Goldman Sachs, Fundrise is buying thousands of homes from builders like D.R. Horton, mostly in the Sun Belt. Fundrise manages the homes and offers returns to investors through its fund.

“What Fundrise does is allows individuals to get access to private real estate at the same if not better terms as institutions and that literally never happened before,” said Ben Miller, co-founder and CEO of Fundrise. “There is a lot of institutional demand, and the fact that individuals can get at it through our website through the same or lower costs, defies the normal Wall Street expectations.”

The coronavirus pandemic pushed demand for single-family rentals, as city-dwelling Americans sought more space in the suburbs. Investors have also been piling in and reaping the rewards, as demand pushes rents higher. Single-family rents nearly quadrupled in May, up 6.6% year over year, according to CoreLogic.

“Strong job and income growth, as well as fierce competition for for-sale housing, is fueling demand for single-family rentals,” said Molly Boesel, principal economist at CoreLogic.Looking ahead, these market forces are expected to remain for much of the year and keep rent increases high, particularly in urban areas and tech hubs as more people return to working in person.”

Institutional investors are actually upping the ante in the market. Invitation Homes, the largest single-family rental REIT, just announced a deal with PulteGroup to buy 7,500 new homes over the next five years, designed and built specifically as rentals.  

Fundrise offers a way for smaller, unaccredited investors to compete. It charges a 1% annual fee. Yet it warns that this is not a short-term trade. Investors can take their money out quarterly, but Miller says that is not the intention of the fund.

“It’s meant to be a long-term investment, so if you’re investing for a quarter, it’s probably not the right fit. There is liquidity every three months if you need it, but the intention is to invest for a five-year or longer horizon,” Miller said.

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