Anyone thinking about putting money into U.S. rental housing should keep an eye on what the people who invested there first are doing. Because they are heading the other way.
Canadians have two main ways into the U.S. market for rentals, buying a house directly with a view to renting it, or buying a piece of an investment company such as Canada's Tricon Capital Group.
Carrington Holding Co. Ltd. was one of the first into the market to buy single family homes. But its chief executive told Bloomberg News last week that the returns aren't there any more. Prices are climbing, and the tenants are hard to find. And Bloomberg notes that Colony Capital LLC has only found renters for half the almost 10,000 homes it spent $1.4-billion amassing.
The U.S. national rental vacancy rate shows signs of bottoming out. After dropping from 10.6 per cent in the second quarter of 2010 to 8.6 per cent by the second quarter of 2012, it has hovered at that level ever since, according to U.S. government figures.
The supply of rental housing is also moving higher. The government figures show that over the past year, the number of occupied and vacant rental units has risen by about 600,000 units to about 58-million units. Most of the new supply has been soaked up, leaving the number of vacant units little changed at about 14-million.
Tricon has seen it get tougher, but it's still buying.
It wants to own 3,000 homes by year end. In some markets, such as California and Phoenix, it's having more trouble finding good deals. Tricon is now looking at other markets to find ones that are less competitive.
"As the shadow inventory declines in some of our west coast markets, good investment opportunities in those markets are becoming more difficult to find, but finding them we are," Tricon head David Berman said on the company's first quarter conference call.
(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)
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