Investment Firms Enter the Single Family Home Rental Market

April 27, 2012 – 6:15 pm

Until very recently, single family home rentals have been the domain of individual investors and small companies. But with property values down and a glut of foreclosures available, some private equity firms see a new opportunity in the rental market.

One such enterprise is Waypoint Real Estate Group, an Oakland-based investment firm that owns 1,100 houses and is buying about five more each day. As this article explains, while investors have been scooping up foreclosures for years with the intention of reselling, firms like Waypoint are hoping they can profit even more by converting foreclosures into rentals.

It seems like a reasonable expectation. In some areas, suburban homes are selling for half their peak values. Demand for rentals is increasing. The total property value of the home-rental market is $3 trillion. And of course, down the road–if and when the housing market rebounds–the properties could be sold at a considerable gain.

In spite of all the potential, however, institutions have typically considered the single-family rental business unprofitable, due to the complexity and inefficiency of researching, purchasing and renting out individual homes.

Waypoint founders Colin Wiel and Doug Brien are trying a fresh approach, drawing from their own experience and expertise to create a system that uses technology like cloud computing, proprietary algorithms and iPads to automate and scale the complex process of buying, renovating and renting houses.

Researchers for Waypoint determine the income value for each house by figuring in such factors as location, schools, crime statistics and other data. Title agents often need to disentangle foreclosures from second mortgages or liens. Leasing representatives work to find qualified renters. Waypoint even employs financial counselors to help tenants repair their credit and create a budget to help ensure they’ll be able to pay the rent.

So far, Waypoint’s strategy seems to be working. The company was earning an 8 to 9 percent return on its capital at the end of 2011, and it continues to attract investors. But as the article points out, Wiel and Brien still have their work cut out for them as they attempt to bring order and scalability to the inefficient business of turning around foreclosures.