Single-family homes are hot investments

November 5, 2012 By Leave a Comment

As more companies convert foreclosures to rentals, publicly traded single-family home REITs may be on the way

November 01, 2012|Amy Hoak, MarketWatch

CHICAGO (MarketWatch)—Investing in single-family homes is becoming big business and a driving force stabilizing home values in communities across the country, as institutional investors see value in foreclosures that can have new life as rental homes.

Soon, average investors may be able to get in the act, too—without having to buy a house themselves.

That’s because some in the industry are more than kicking around the idea of creating publicly traded real-estate investment trusts, or REITs, for single-family rental homes.

“To date, there has been no publicly traded vehicle in which any investor can participate in the housing recovery. Our goal is to remedy that,” said Stephen G. Schmitz, chairman and chief executive of American Residential Properties, a real-estate investment company that acquires, renovates, leases and manages single-family properties. Today, there’s really no vehicle for an investor to play in the space “unless he wants to get a pickup truck and tool belt and wants to buy two or three houses.”

Currently, American Residential Properties, based in Scottsdale, Ariz., is operating as a private REIT, after selling $224 million of stock, mainly to institutional investors, at the beginning of the year. But in the future, there’s a good chance the REIT may be heading for an initial public offering.

“It is something that we’re actively considering,” he said.

Others are as well.

“Investment bankers in this space clearly believe that it’s inevitable to see multiple publicly traded REITs,” said Colin Wiel, managing director of Waypoint Homes, based in Oakland, Calif., another company in the business of acquiring and renting out single-family homes that is considering the possibility of becoming a publicly traded REIT.

Right now, publicly traded REITs include those based on apartment properties as well as retail, office and industrial space.

It is possible that new single-family publicly traded REITs could be on the scene early next year, said Rick Sharga, executive vice president at Carrington Mortgage Holdings in Santa Ana, Calif., which also invests in single-family homes and turns them into rentals.

But when the opportunity arrives, investors should exercise caution.

REITs are fairly conservative products by nature because the underlying assets include a large number of properties, Sharga said. At the same time, you can’t compare existing residential REITs based on apartment buildings to ones based on single-family homes, he said. It’s still unclear if the renters in these properties will stay long-term, and it’s hard to anticipate how the properties will perform over the long haul.

“There’s no track record on these properties,” Sharga said.

Budding industryIt’s a new concept, buying single-family properties and renting them out on a large scale. In the past, it was mainly individuals who owned and leased out these properties.

 

COURTESY OF YOUR NUMBER ONE ARCADIA REAL ESTATE AGENT

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The Door Is Now Open to Home Builders

September 23, 2012 By Leave a Comment

Housing is hot again.

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It was a sign of renewed investor enthusiasm last week when real-estate-information firm Trulia Inc.’s TRLA -4.04% share price rose more than 40% on Thursday following its initial public offering. So was the surge Friday in KB Home KBH +16.40% shares after KB reported an unexpected quarterly profit. Although home prices turned the corner just this past spring, shares of home builders have more than tripled on average since their 2009 nadir.

Next up is Lennar Corp., LEN +2.49% which is slated to report fiscal third-quarter earnings Monday. Analysts expect earnings of 28 cents a share for the period ending in August, up sharply from 11 cents a year earlier.

For a while this spring it was possible to debate whether the long-awaited turn had come in house prices, as some measures turned positive while the widely followed S&P/Case-Shiller Home Price Index lagged behind. Now that measure, due Tuesday, is pointing up as well, although its originator, Robert Shiller, says he isn’t convinced we have hit the bottom yet.

In any case, there is cause for at least short-term cheer, particularly for home builders that rallied after last week’s housing-starts data. Single-family housing starts rose at the quickest pace since April 2010—a period artificially boosted by a tax credit for first-time home buyers. Lennar’s share price broke above $37 Friday for the first time since June 2007, ending at $38. Is it deserved? In its last reported quarter, the company sold 3,222 houses, up 20% year on year. But in 2006 it sold nearly 50,000 in a year. Even though its operating margin nearly doubled to 9.2% in the second quarter, that is still shy of the mid-to-low teens Lennar enjoyed in its heyday.

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Bloomberg NewsKB Home shares surge Friday after the company reported an unexpected quarterly profit.

In a way, that is encouraging, because there should be more upside even with the stock trading at nearly 27 times 2013 earnings estimates. Housing starts have slumped mightily since their peak, and pent-up demand is significant. Between 1992 and 2007, single-family starts averaged nearly 1.3 million a year, while they averaged just 500,000 the following four years. The Fed’s recent steps to further boost housing by buying mortgage-backed securities bode well, too.

While not home-free, home builders have given investors some grounds to justify recent gains.

By Spencer Jakab

COURTESY OF YOUR NUMBER ONE ARCADIA REAL ESTATE AGENT

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