The single-family rental market undeniably has the potential to be a major asset class in commercial real estate. While in its infancy, investors have already shown fervency for the sector with an estimated $50 billion allocated for the SFR market. However, the pool of quality opportunities is smaller than most new entrants realize, and some developers are heading further outside of the urban core in an effort to place capital—but these remote locations aren't going to deliver the returns investors are expecting.

"We have always implemented a main-and-main-type location into our strategy, but we have noticed a deterioration in location selection," Mark Wolf, CEO of AHV Communities, a single-family rental developer, tells GlobeSt.com. "The further out you go, when the music stops, those will be the first assets to go south. Site selection is paramount to anyone's success in real estate; I don't care what asset class you are in."

Building in these remote locations ignores the underlying fundamentals and drivers of the asset class, but Wolf says that it is a function of the sheer excess of capital in the space. To put the $50 million figure into perspective, Wolf's company will do 12-14 projects next year, representing about $1 billion in development activity. "There is so much money looking for opportunities and these players are willing to push the envelope and convince themselves that some of these locations are okay," he says. "It is also a function of people entering an asset class that they don't understand fully."