Some investors are beginning to see potential in the low-income single-family housing market.
While many companies had purchased large quantities of abandoned homes following the foreclosure crisis, investors had looked past the affordable housing market because the returns tend to be lower. But this is changing as a competitive housing market is driving home prices higher and compressing yields, Bloomberg reports.
Atlanta-based startup The Promise Homes Co. saw opportunity in low-income housing stock previously owned by Invitation Homes Inc. and in August purchased 220 houses in lower-income areas around Atlanta for $22M. The company intends to acquire 2,500 homes by the end of 2019 and will offer them for an estimated $1K per month.
In order to achieve its goals of creating investor returns in the low double digits as well as helping tenants to improve credit and remain in their homes longer — which helps landlords by reducing turnover costs — Promise Homes offers incentives to those who demonstrate strong track records of on-time rent payments. In return, tenants can receive rent abatements and reductions or gift cards.
New York-based private investment firm Cerberus Capital Management L.P. is also buying up working-class homes across the U.S. Its FirstKey Homes unit owns approximately 14,000 properties spanning 24 markets across the country. Average rent in each of the homes is estimated to be $1,300 per month compared to Invitations Homes, which charges about $1,700 per month, Bloomberg reports.
Like Promise Homes, Cerberus is implementing a long-term strategy both in terms of its investments and its push to help families remain in homes and neighborhoods for as long as possible.
This trend could pick up as mortgage financing company Freddie Mac has more recently moved into the market. In January it backed a 1,000-property single-family home portfolio that offers rentals for between $800 and $1,150 per month.
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