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Investors Start Snapping Up New Houses for Rentals, Not Just Foreclosures
Journal of Light Construction / May 15, 2013
They started building their property portfolios by paying low-ball prices in cash for foreclosed bank-owned properties. But now, big investment companies have started to purchase new houses too, according to a report in Bloomberg BusinessWeek (“Private Equity Taps Builders as Foreclosures Vanish,” by John Gittelsohn).
“Landsmith LP paid $32.5 million this month for 250 Houston-area houses that were built last year,” the report says. “The firm, which began buying properties to rent in 2009, has 2,000 lots for new homes under contract and expects to purchase a total of 4,000 new houses this year, according to San Francisco-based Chief Executive Officer James Breitenstein.”
“American Homes 4 Rent, a Malibu, California-based company headed by Public Storage founder B. Wayne Hughes, bought from Lennar Corp. (LEN), KB Home and M/I Homes Inc. in Florida’s Hillsborough County, according to property records,” the report goes on.
The big equity firms represent a new, post-crash business model: Cash-rich investors get the best prices on distressed properties, then manage the homes as rentals. One way to organize the business is in the form of a REIT, or Real Estate Investment Trust, which avoids some federal taxes for the stockholders. The New York Times described the business method in an April 2, 2012 story (“Investors Are Looking to Buy Homes by the Thousands,” by Motoko Rich). “With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants,” the Times reported. “Nobody has ever tried this on such a large scale, and critics worry these new investors could face big challenges managing large portfolios of dispersed rental houses.”