Investing

Blue state buyers swing to red state rentals

Maturing single-family rental industry helps mom-and-pop investors buy beyond their backyards
  • Passive investors are increasingly finding the data, technology and online platforms that enable them to buy outside their local markets.
  • Many of the buyers are coming from politically blue states and investing in politically red states.

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Third generation real estate developer Adam Whitmire realizes this is not his father’s housing market.

“Because of the financing — because of the availability of technology and the information, it allows us to connect to local boots on the ground, evaluate them and their performance, and evaluate markets because of the data,” said Whitmire, director of acquisitions and CTO at The Whitmire Group, an Atlanta-based company that aggregates and sells turnkey single-family rentals mostly in Alabama to investors from across the country and overseas.

Whitmire said the single-family rental industry was transformed by institutional investors in the wake of the Great Recession, and the innovations birthed during that transformation are now trickling down to individual mom-and-pop investors.

One California rental for 27 in Alabama

“We can sell a package of 10 to 15 homes to an individual investor whose 401(k) didn’t do very well during the recession,” Whitmire said, providing as an example a California woman who sold the one rental property she owned in California and used the proceeds to purchase 27 rental homes in Alabama through Whitmire’s company.

“She’s making a very significant cash flow,” he said.

Passive investors are increasingly finding the data, technology and online platforms that enable them to buy outside their local markets, according to Gary Beasley, CEO and founder of Roofstock, an online marketplace for single-family rentals.

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Many of the buyers are coming from politically blue states and investing in politically red states.

“A lot of demand is people in the Bay Area and New York City looking to buy in the Southeast,” said Beasley, former co-CEO at Starwood Waypoint Homes, which earlier this year merged with Colony American Homes to become the third-largest institutional investor in the single family rental market, according to the Single-Family Rental Primer published by Keefe, Bruyette & Woods in September.

Investor financing for all folks

In 2014, Ryan McBride helped launch Colony American Finance to provide financing specifically to residential real estate investors.

“We realized that there was no scalable financing solution in the space,” said McBride, who now serves as the company’s COO. “We basically went from $0 to $2 billion in closed loans. We have 1,400 borrowers. So we’ve come a long way in about two years.”

McBride said he’s noticed a shift in the type of customers Colony is attracting in the past 18 months.

“Early on it was the mid-sized investors all the way up to the large institutions (that) had the most urgent need for capital,” he said. “We see a lot more opportunities from the smaller, mid-sized operators, and so that is where we are focusing our efforts: the broad base of the pyramid.”

Sticking to Southern California

Whitmire has shifted his single-family rental aggregation strategy by moving into secondary and tertiary markets beyond his backyard, while other mid-sized operators are staying in their backyard but adjusting their acquisition and exit strategies.

“We’re acquiring (but) it’s slowed down,” said Jeff Pintar, founding partner and CEO at Pintar Investment Company, which has built up a portfolio of about 350 single family rental homes mostly in Southern California and Las Vegas since 2009.

“We buy both flips and rentals in our fund. Right now about 65 percent of our capital is toward flips and 35 percent toward rentals. … It’s flip-flopped because prices have increased.”

Shifting to SFR in New York

On the opposite side of the country in the tristate region around New York City, investor Gavin Reilly is also sticking to his backyard — where distressed deals are still readily available.

“I’m slowly transitioning over to the rental property area and more so to single family.” said Reilly, CEO at Tri State Fine Homes, which he started in 2012.

Reilly said he recently purchased a single family rental for $32,000 in cash and plans to spend about $28,000 to renovate before renting.

“I’m hoping to clear 400 to 500 a month on that, and that should put me at a 10 cap there.”

Buying new homes as rentals

Alberto Chocron runs the Florida-based Build US Back real estate investment fund that buys homes in Florida and other parts of the Southeast.

Chocron noted that the company’s strategy for acquiring single-family rentals has evolved dramatically from buying distressed homes to buying new homes.

“The opportunity back in 2010, 2011, even 2012 was more to acquire distressed inventory, fix it and rent it out,” he said.

“As the market dried up in terms of that opportunity … we started to partner up with some of the country’s most prominent home builders, and we basically acquire bulk new homes from them.”

Read the full story in the November 2016 Attom Housing News Report

Daren Blomquist is the senior vice president at Attom Data Solutions.

Email Daren Blomquist.