Big Single Family Rental Firms Change Tactics

Dated: April 12 2016

Views: 406

JACKSONVILLE, Fla. – April 11, 2016 – Local Jacksonville firm JWB Real Estate Capital bought 502 homes last year, and it's already bought more than 200 this year.

Corner Lot Properties, also of Jacksonville, has slowed its home-buying to a dozen or so a month. But it still owns more than 500 in town.

The big national players such as Invitation Homes and American Homes 4 Rent aren't buying like they did a couple of years ago, but they each own about 2,000 homes in the Jacksonville area.

All those homes are being rented.

Real estate across the country has been on an almost-unprecedented roller-coaster ride. It boomed in 2005 and 2006 when sales and prices skyrocketed and homes were built a pace that Jacksonville had never seen.

That was quickly followed by the crash of 2008 and 2009, when sales bottomed out and prices kept falling.

Sales are back up, prices are rising, but out of those ashes came a new wrinkle in real estate: Companies that own hundreds of homes filled with renters, where the motive is monthly cash flow more than the appreciating price that used to drive the market.

Buying everything

The big boom in buying was a couple of years ago, when so many homes were in foreclosure and prices were rock bottom. The median sales price in the area fell from about $270,000 in 2006 to $150,000 at the start of 2012.

The big buyers swooped in.

"When I was selling a lot of short sales in 2011, 12 and 13, maybe as much as 40 percent of my buyers were hedge fund managers," said Brad Officer with RE/Max Specialists. "They had local reps, and most of the time they never even stepped into the house until our seller accepted the offer."

Howard Flaschen of Roundtable Realty was one of those local reps. He figures he bought more than 1,000 homes during 2013 and 2014 in the Jacksonville area for Invitation Homes, a subsidiary of Blackstone.

"They had a spreadsheet and we'd plug in the numbers, with our assumptions on improvement costs," he said. "If the analysts approved it, we bid on it. Then they would take it from there."

"I'd probably look at 100-200 a day," he said. "In the beginning, it was like the Wild West. I'd probably bid on 99 percent of them."

Most of the homes he bought were in the $150,000-$275,000 range. As prices went up, Invitation's purchases dropped.


But local companies Corner Lot Properties and JWB, formerly Progress Home Buyers and Jacksonville Wealth Builders, were also buying lots of homes. They both had similar business models: Buy homes at low prices, fix them up and put renters in them. They sold many homes to investors but also kept some for themselves.

Along the way, Corner Lot built a portfolio of more than 500 homes. But co-owner Andy Allen said that's enough homes to manage, so he's only buying a dozen or so each month these days. He's fixing those up and selling them to people who will live in them.

But Corner Lot is also building homes in neighborhoods, from Murray Hill to the Beaches, either tearing down existing homes or finding scattered vacant lots. It's got six under construction at the moment in Jacksonville Beach and Neptune Beach.

Allen said they expect to build about 20 this year. But it's also developing new communities: Buying land, getting the zoning and selling to developers.

"It's just a natural evolution," Allen said.

JWB has also moved into homebuilding, including the 90-lot Southside Oaks. But it's still buying and renting.

President Alex Sifakis said JWB will keep about 40 percent of the homes. The rest it will sell to investors who want real estate but not the hassles of finding a home, rehabbing it and putting in a renter.

"We're trying to make it as easy to get into real estate as it is to buy a house," he said.

The average buyer owns three homes bought from JWB, he said.

Sifakis said they might buy a typical home for $40,000 and put $35,000 into a complete rehab: new roof, plumbing, air-conditioner, etc. Then they'll sell it for $100,000, with a renter, of course.

"They are getting harder to find," he said.

JWB buys his homes with money from private investors, a total of more than $100 million so far, Sifakis said.

It works like this: JWB has an email list of interested people. When it's about to buy a home, it sends out an alert. A lender responds with the money and when the home is sold, he gets it back with 10 percent.


There is, apparently, no shortage of renters.

"It's absolutely crazy," Allen said. Corner Lot's 502 homes stay about 98 percent occupied, he said.

"A lot of people have been displaced by foreclosure," said Terrell Newberry of Century 21 Atkins Realty and president of Northeast Florida Association of Realtors. "Qualifying has been tougher in the past three-five years and you have those who can no longer buy a home."

But Officer said a lot of it is by choice.

"I've got one tenant living in a house," he said, "they're dual income, they'd have no trouble buying. But they have zero interest. Even with rates below 4 percent. The FHA today is 3 1/4.

"Usually you would have mom and dad urging their kids to buy with rates so low," he said. "But mom and dad are still burned by the recession, so they're telling them not to."

Not in the market

One result of all the homes being rented out is that they're not for sale. And that's produced a shortage.

The rule of thumb in the real estate world is that having a six-month supply of homes is ideal. In other words, the number of homes on the market today would last six months at the current rate of sale.

Back in 2008, that figure rose to 17 months. It's been falling steadily since then and settled in right about six months for all of 2013 and much of 2014. But then it started to fall again and was 3.9 months in February, according to the Northeast Association of Realtors.

For homes below $150,000, that figure is 2.9 months.

There were almost 1,800 fewer homes for sale that month than there were in February 2015.

But looking back, Flaschen said the mass purchases were good for Jacksonville.

"I think it absolutely helped put a floor under the housing market," he said. "Loans were so tight, if a house needed a new roof or had wood rot, you couldn't get a loan. You needed someone with deep pockets and cash.

"Otherwise, the homes were just going to sit there and continue to rot."

Invitation Homes declined a request for an interview. But Flaschen said there could well become a time when companies like Invitation start selling their homes if rents drop and home values continue to rise.

"I don't think they'll flood the market and sell 1,000 homes," he said, "because that will depress the market. Remember, they are the smartest guys in the room."

Copyright © 2016 The Florida Times-Union (Jacksonville, Fla.), Roger Bull. Distributed by Tribune Content Agency, LLC.

Blog author image

Angelo F. Terrizzi Jr.

I am a New England native, born and raised in the Boston area. Growing up, I was always involved with extra-curricular activities through school and church. I spent 30+ years in Business and later in ....

Want to Advertise on this Site?

Latest Blog Posts

Selling A Home

Selling a home can be a difficult task for even the most seasoned of sellers. There is so much that goes into the process of placing a property on the housing market. First, the owner needs to get

Read More

Dear Homebuyers Please Stop Thinking You Need 20 Percent Down

NEW YORK – Feb. 18, 2019 – First-time buyer surveys consistently show the top hurdle to homeownership is saving up for the downpayment. But potential home shoppers may be misunderstanding the

Read More

Green Building At All Time High In Nations Largest Metros

LOS ANGELES – Aug 24, 2018 – The nation's largest cities are getting greener, according to the fifth annual U.S. Green Building Adoption Index by CBRE and Maastricht University.

Read More

Easy Deep Cleaning Tips

These are great hacks to cut your time and energy in half. Soap Scum in the Tub - Cut this backbreaking effort in half by attaching a scrubber to a power drill and using it to do the scrubbing for

Read More