Single-Family Homes as Rentals – The New York Times
JULY 17, 2014
Bulk purchases of single-family homes by hedge funds and private-equity firms have been the focus of media attention over the last few years, but individual investors are also showing interest in the market, albeit with less vigor as home prices rise.
HomeVestors, a network of real estate investors known for its “We Buy Ugly Houses” signs, has experienced “unprecedented interest” over the last two years, said David Hicks, a company president. Franchisees, in 120 markets in 40 states, pay cash for homes usually in need of work, fix them up and resell them.
Typically, 30 to 40 percent of the properties acquired by franchisees are sold to investors, but that share has risen to 40 to 50 percent, Mr. Hicks said. And he noted that interest in opening a franchise is up. “We’ve added more new franchises in each of the last two years,” he said, “than at any other time in our history.” The company started in 1996.
HomeVestors franchises work with local investors. But a real estate investment company that started in May is trying to make single-family investment opportunities available to smaller investors on a national level. Called HomeUnion, the company helps investors identify, buy and finance properties in 15 markets.
The HomeUnion website features listings for single-family properties it deems to have the highest cash-flow potential. Once a buyer chooses prospective properties, the HomeUnion staff arranges the purchase and financing. Each home is also assigned to a property manager who handles landlord responsibilities.
“The advantage to the investors is we are providing this on a national scale,” said Chiranjib Pal, the chief financial officer.
Daren Blomquist, the vice president of RealtyTrac, which tracks foreclosed property, says having access to more markets can be beneficial, but comes with risks. “Investors need to carefully vet whom they are partnering with in those markets,” he said, “and I would advise investors to be extremely cautious in buying a home that they have not seen in person.”
HomeUnion focuses on markets where the rent-to-price ratio is such that monthly rental income totals at least 1 percent of the property price, said Don Ganguly, the chief executive. For example, a house that costs $100,000 would have to generate rental income of at least $1,000 a month. The company weighs other metrics, including the balance of renters versus homeowners, vacancy rates and population growth, Mr. Ganguly said. Featured listings range in price from $60,000 to $250,000.
Also a mortgage broker, HomeUnion helps investors get financing. Qualifying terms for agency loans — the lowest-cost investor loans — include 20 percent down and a minimum FICO score of 620 for up to four mortgages, Mr. Pal said. For additional loans, up to a maximum of 10, Fannie Mae and Freddie Mac require 25 percent down and a minimum FICO score of 720.
Single-family homes have been the fastest-growing segment of the country’s rental stock, according to Fannie Mae. From 2005 to 2010, single-family units grew to 33.5 percent of all rentals from 30.8 percent, a 2012 survey showed.
Individual investor activity in buying single-family homes surged in 2011 and 2012, as did that of institutional investors. But because of rising home prices last year, individual investor activity fell to 20 percent of all second-home sales, compared with 24 percent in 2012 and 27 percent in 2011, said Adam DeSanctis, the economic issues media manager for the National Association of Realtors. Investors are proceeding more cautiously, he said.
A version of this article appears in print on July 20, 2014, on page RE7 of the New York edition with the headline: Single-Family Homes as Rentals.