Florida Single-Family REITS Show Promise

More and more real estate investment trusts (REITs) are cropping up in Florida as property purchases pool resources to buy blocks of homes and then hold them while …

More and more real estate investment trusts (REITs) are cropping up in Florida as property purchases pool resources to buy blocks of homes and then hold them while tenants pay rent that is then used to rehab the real estate. Although it seems like a solid plan to investors, considering how many are joining the bandwagon, ratings organizations like Fitch are unsure how the new single-family rental REITs will perform and are reluctant to qualify them as secure. Market analysts agree that traditional REITs are usually a worthwhile addition to a portfolio and this new trend will simply depend on how risk-averse interested investors are. For more on this continue reading the following article from JDSupra.

We’ve already discussed how Beazer Homes and American Residential Properties (ARP) are pioneers in buying up blocks of homes – usually in short sales – and then holding them, not reselling them, to get their profits out by being landlords to tenants who will pay a high enough rent to cover management costs, rehab expenses, and the like. For more on Beazer read our May 2012 post; for more on ARP, read our post from earlier this week. 

Apparently, we’re not alone in monitoring a new form of real estate investment trust (REIT). 

Bloomberg is reporting that Colony Capital LLC, Och-Ziff Capital Management Group LLC (OZM) and Two Harbors Investment Group have also joined the parade.  These three are also buying up residential, single family homes facing foreclosure and then renting them out … or they are in the business of finding investment money that is interested in doing this.

According to Bloomberg, Fitch Ratings is pondering this new kind of Rental REIT, and Bloomberg is reporting that Fitch Ratings isn’t too comfortable with them: Fitch seems to have concerns about performance data – things like market rents; vacancy rates; other landlord-tenant type of problems, etc.  There’s no track record yet, so Fitch is skittish.

Meanwhile, over at the Motley Fool, there is more discussion about these new Rental REITS.  Motley Fool looks at historically low rental vacancy rates across the county together with their view that growth in American home ownership will remain slow if not stagnant for several years to come.  They’re happy with rental REITs overall as investment vehicles.

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And Ben Steverman at BusinessWeek is offering his take on Single Family Rental REITS, too.  Given bargain prices across the country for single family homes, he asked four market wizards for their forecast: 

What did these four find? 

Real Estate Investment Trusts (REITs) overall are a wise investment decision these days; the choice comes down to risk analysis on the type of REIT vehicle to select.   John Burns sees single family rental REITs as the "biggest opportunity" since housing has been in such a bad place for awhile now.  However, the bottom line in the BusinessWeek story appears to be a big interest in investing in debt – where the investor isn’t depending so much on the speed and strength of a recovery in order to make a profit.

Is it really a question of how risk averse you are?  Perhaps. 

Consider this:  last month, bounty-hunting firm Bureau of Fugitive Recovery, Inc. – that’s no play on words, this was a company that made its money as bounty hunters – changed ownership.  Chad Carpenter bought 6 million shares of the Bureau to make himself the majority shareholder.

Of interest, Mr. Carpenter is also the head of a California real estate investment company that is known for its risk-loving investment strategies (Reven Capital LLC).

A few weeks ago, and shortly after the take-over, it was announced that the Bureau of Fugitive Recovery was having a make-over. 

No longer will it make money bounty hunting.  No.  In the future, BFR will be in the business of buying up portfolios of single family home rentals from investors who have already compiled the portfolio after finding the homes, fixing them up, and renting them out.

So, could it be that Mr. Carpenter is onto something?

This article was republished with permission from JDSupra.


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