Hedge funds are reported to have allocated over $6 Billion for such investments, but are also reported to be having some difficulty deploying the funds effectively. The challenge is execution. Real estate has always been a local business with local nuances. Successful execution requires a management team with deep single-family housing knowledge, development and operating experience, contacts, credibility and local knowledge.
Knowing where to buy and how to buy at low prices in each local market are key to both our ‘Land & Lot’ Funds and our ‘Buy-to-Rent’ Funds.
As developers of land into lots, we have decades of experience in our South East markets in targeting, acquiring, planning, permitting, infrastructure and amenity package installation and eventual marketing of finished lots to builders and the public.
We believe achieving the targeted rental yields and capital gain on our investments in Buy-to-Rent will be primarily driven by several key factors within our control:
- Right geographic market and home location within that market.
- Hands-on home inspection and ‘ready to rent’ cost control.
- Professional rental management.
- Ability and credibility to negotiate volume transactions.
- Purchasing at least 30% below replacement cost.
- Achieving a 25% distressed sale discount on homes acquired.
- Discipline with purchase price.
Among the key factors outside our control are:
- Fed policy, including QE and interest rates.
- The economy, local job creation,
- Availability of mortgage credit, and
- Inflation rates.
Our group has been successfully testing this huge foreclosure and short-sale market through our affiliated companies, during the past year.
We have been achieving what we believe are excellent financial returns. However, real estate investing is hugely capital intensive without leverage. We have therefore decided to prioritize the institutional ‘buy to rent’ model since this model is most readily equity financed by institutional investors seeking stable yields with the potential for capital gain realization.
Under this model we believe we can systematically scale up to purchase and rent as many as 8,000 homes per annum, investing up to approximately $1Billion per annum.
The pace of deployment of institutional capital will be very much determined by bank and GSE strategies for dealing with extended payment delinquencies.