April 20, 2014
Danny Kattan

Managing Director Danny Kattan’s Property Investment Advisors specializes in buying, remodeling and renting single-family homes in south Florida.

Photo: Daniel Portnoy

Summer Greene

The bulk buys are “closing a lot of people out of the home market.” — Summer Greene, president of the Florida Realtors

Photo: Eileen Escarda

Scott Kranz & Erik Wesoloski

Scott Kranz (left) and Erik Wesoloski of Title Capital Management are targeting homes costing between $50,000 and $250,000.

Photo: Daniel Portnoy

Rental Home

American Homes 4 Rent bought this three-bedroom, two-bath home in Winter Garden last April for $138,500 and listed it for rent at $1,225.

Photo: Phelan Ebenhack

Rental Home

American Homes 4 Rent bought this home in Jacksonville last year for $101,000. The three-bedroom, two-bath house was listed for rent at $1,150 a month.

Photo: Jon M. Fletcher

Real Estate in Florida

Landlord Inc.

Big investment firms are buying Florida single-family foreclosures in bulk, expecting to profit twice: First by renting out the homes and then by reselling them in a few years.

Amy Keller | 1/30/2013

As of late 2012, five years after the real estate crash bottomed out, there were still more than 300,000 foreclosed homes in Florida and another 250,000 or so bank-owned properties, called REOs.

In recent months, however, those homes have been coming off the market more quickly. In October, overall sales of single-family homes were up 25%, while inventory was down 30%.

The sales surge doesn’t reflect a rebound in the traditional market for single-family homes — the people purchasing the homes aren’t individual Smiths and Wilsons and Garcias.

Instead, sales records across Florida reflect at least 4,000 purchases by a cadre of private equity funds, hedge funds and REITs with names like American Homes 4 Rent, Blackstone Group, Two Harbors Investment and Pacifica.

Since last summer, for example, American Homes 4 Rent, based in Malibu, Calif., has purchased more than 640 homes in eight Florida counties. The firm has spent $20 million on approximately 200 homes in the Jacksonville area, $9 million on 60 homes in the Tampa region and approximately $20 million on more than 200 homes in the Orlando region.

The sales represent the first major incursion into the rental market for single-family homes by big investment firms in Florida’s history.

“There’s between $8 billion to $10 billion worth, and what was once considered a mom-and-pop asset class is becoming an institutionalized asset class,” says Danny Kattan, managing director of Property Investment Advisors, a real estate investment company that specializes in buying, remodeling and renting single-family homes in south Florida.

The investment groups all share the same strategy: Pay cash for clusters of foreclosed, bank-owned or otherwise discounted homes, generate healthy cash flow by renting them, then exit in a few years when demand from traditional buyers increases and the homes can be sold at a healthy profit.

The dynamics of the market are simple: Prices of single-family homes are low. Rental rates for single-family homes are high. Cap rates on rentals — the net rental income from the home divided by its sales price — are far outperforming most other asset classes.

Real estate experts say investors can expect, on average, 6% to 8% returns on single-family rentals in Florida. Some markets provide better opportunities than others, however. According to Core Logic, a real estate industry analysis firm, Florida boasts some of the highest cap rates in the nation, with rentals in Fort Lauderdale providing a 12% return and West Palm Beach averaging around 12.4%.

Vulcan Investment Partners, a Miami investment group founded by a group of Mexican businessmen, predicts it will hit a 14% cap rate on the homes it’s acquiring in Miami-Dade and Broward counties.

That’s a game-changer for investors, says Lewis Goodkin, a Miami-based real estate analyst who has been advising investor groups on Florida’s single-family market. The “condo vulture” investors who snapped up hundreds of condo units at distressed prices a few years ago didn’t expect to make money by renting them out, he explains. Their strategy was simply to sell the units at a profit “down the road” when prices rebounded.

Tags: Real Estate

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