With a continually struggling housing market, the prognosis for the sector is still poor, but there are areas of the nation and types of investments that are improving greatly, pointing to signs of life in real estate. One company embodies the signs of health, a family-owned company in Memphis that focuses on the REO-to-rental market.
Memphis Invest converts distressed REO properties to rentals, and they place a tenant, so it is a performing asset for private investors. The company recently released their first quarter activity report, showing a 67 percent year-over-year increase in the number of its homes sold to investors. Of those, 82 percent were REO, thus providing the nation a great example of how the REO to rental strategy can help revitalize communities one home at a time.
Chris Clothier, Partner at Memphis Invest is one of the nation’s leading experts in single-family rental real estate services and attributes the company’s growth to lower prices and lower interest rates, as he notes they have “removed many barriers for both novice and experienced investors, and these individuals are now getting heavily involved in the single-family rental housing industry.”
Clothier added that many investors have no interest in being a landlord, so they work with companies like theirs to allow remote involvement. “That ease of entry and passive involvement also lead investors to move beyond two or three properties and into portfolios of seven to ten,” said Clothier.
Cities primed for growth
The REO conversion market is heating up, and Clothier points to Memphis, Dallas, and Atlanta as hot spots. “We obviously like Memphis and Dallas,” said Clothier, “and feel that they will continue to be strong markets for single-family rental investments, and we continue to look toward expansion into Atlanta and possibly Nashville. These southern cities are some of the fastest growing areas in the country and have solid, fundamental economies in place. Large employers, solid infrastructure and solid future demand for their core industries mean consistent demand for good housing in these markets. In light of the shift from home ownership to renting, much of that housing demand will be for high quality rental housing.”
Making an important distinction, Clothier adds, “So MSAs with growing economies, solid fundamental industries and growing populations are prime areas – not simply cities with high concentrations of foreclosures.”
What government programs should be expanded or contracted?
In an election year, there is much focus and introspection as a nation as to what our government is doing to help or hurt the economy, and Clothier takes an optimistic look at which programs are beneficial.
“A federal government program that I would like to see expanded is the Federal National Mortgage Association’s (FNMA) role in providing funding to SFH investors,” said Clothier. “This is a group that can and will adhere to stricter guidelines designed to offer protection to FNMA’s portfolio. I would love to see FNMA expand their financing options for investors beyond 10 properties and couple that expansion with tighter lending requirements such as higher down-payments. If investors were asked to put 35 percent to 45 percent down on investment properties in order to obtain mortgages number 11-20, I feel this would draw many investors who are sitting on the sidelines holding 10 mortgages back into the market. These are typically investors who would like to be participating but would prefer to stretch their capital further by using financing.”
Clothier noted, “In addition, I would love to see the federal government work with local governments to turn over foreclosed properties in extremely blighted areas for the local government to remove dwellings and take the properties back to unimproved land. This would greatly reduce crime in these areas, discourage vandalism and blight and when the time is right, allow a community to re-invest and rebuild areas.”
Company growth plans
Where does Memphis Invest see their company headed? “Our growth demands are predicated by the appetite of our clients,” said Clothier. “We are constantly being asked for more options to diversify portfolios and are answering that demand by entering Dallas and Atlanta.”
The company says they will be managing over 2,000 properties in Memphis, Dallas, and Atlanta by the end of 2013, representing $200 million in real estate value. “Future plans involve identifying additional markets that include Nashville, among others, and continuing to meet the demand of the new investor,” noted Clothier.
April 23, 2012 at 12:26 pm
Tara, obviously there are many sides to this story, but REO to rentals has the propensity to turn neighborhoods into “detached apartments with out a community laundry room”.
How will the neighborhoods look when they tenants don’t keep up the home or when they quit paying rent. Tenants move far more often than do homeowners, so the lack of stability is going to hurt values as well.
April 24, 2012 at 8:44 am
Please see this data note for more information on Single-family Rentals and the American Community Survey
Also, this white paper from the Federal Reserve on the post-foreclosure experience of US households, who for a large majority rent single-family homes after foreclosure.