Investors Clear Backlogs, Snap Up Single-Family Rentals

October 4, 2012

The Blackstone Group has become the largest investor in the U.S. of single-family rental homes, spending more than $1 billion so far this year, The Wall Street Journal reports. The private-equity firm has purchased more than 6,500 foreclosed homes this year in eight metro areas. 

Investors have been taking advantage of lower home prices over the last few years by snapping up foreclosed properties at big discounts and turning them into rentals. Private-equity firms and other investors have raised an estimated $6 billion to $8 billion in purchasing single-family rentals, The Wall Street Journal reports. That could equate to about 40,000 to 80,000 properties, according to some estimates. 

“Of course, success is by no means assured for private-equity firms, especially given their high targets for investment returns in general and their lack of experience with this type of real estate,” a recent article at The Wall Street Journal notes. “Used to buying office buildings, shopping centers and other big properties, they may struggle to find economies of scale in managing thousands of individual homes in neighborhoods that were hard-hit by foreclosures, but are showing signs of price stabilization.”

Blackstone is banking on initial yields of 6 percent to 7 percent on the rental income of its properties. The private-equity firm also needs rents and home values to rise further if it’s going to obtain double-digit returns from its rentals, The Wall Street Journal notes. 

"I believe the smart thing to do is to ramp up really quickly, because I think the dynamics are going to change dramatically in the next 12 months," says John Burns, an Irvine, Calif.-based housing consultant. "We're going to see a lot of price appreciation at the low end of the market, which means lower cash yields."

Source: “Rental Market's Big Buyers,” The Wall Street Journal (Oct. 3, 2012)