June 5, 2020 at 12:03 am #22527
The multifamily model taught in Breaking Down REPE is a great launching point for modeling the SFR space. There are two key things I’d like to highlight if you’re looking to model SFR on your own:
- Single-Family Rentals will incur much higher operating costs. Freestanding homes are simply less cost-efficient than a multifamily structure. You need to drive further to service them, they’re less energy efficient, there is more surface area to repair, they have larger footprints, and so on. Thus, the firms are typically structured with higher OpEx and more distributed controls to efficiently manage a network of local professionals rather than a centralized group of on-site staff for maintenance, concierge, leasing, etc.
- Residential home prices more directly impact the SFR market. If a person buys a home next door for personal use, that will obviously impact the value of your property. This is important to understand because different factors drive demand for home buyers than multifamily renters. Of course, home prices tangentially impact multifamily valuations as well. For instance, there probably would be less renters in San Francisco if the home prices weren’t so high. All this means that SFR models typically involve some form of home price index, Zillow scrapes, etc. to value their properties in addition to a direct cap / DCF method.
Hope this helps, feel free to follow-up here.