Landlord profits depend on finding efficient ways to change locks, turn on utilities and reduce tenant turnover, according to Aaron Edelheit, a former hedge fund manager whose American Home Inc., owns 2,500 rental houses in the U.S. Southeast.
“The difference between earning 8 percent and 2 percent is all in the details,” Edelheit said in a telephone interview. “It’s death by 1 million paper cuts.”
Big Test
The big test for rental companies is showing they can manage scattered-site properties that have their own lawns and roofs, unlike multifamily apartment buildings, many of which have been under institutional management for years.
“The multifamily industry has had several decades of a head start to refine processes and this industry has not even had two years,” Chang said. “So some of the challenges still lay ahead.”
Companies building rental businesses are facing the biggest increase in home prices since 2006. The S&P/Case-Shiller index of home values for 20 cities probably rose 10.6 percent for the year ended April after a 10.9 percent increase in March that was the biggest year-over-year advance since 2006, according to the median forecast in a Bloomberg survey of economists before a June 25 report.
Investor buying is pushing up prices that are also recovering as the economy improves and the Fed for now keeps mortgage rates near record lows.
Later Stages
It’s unclear how long the buy-to-rent acquisition boom will last, as rising home prices make it a less-profitable pursuit. Blackstone’s Gray said June 10 in an interview with Bloomberg television, “for our type of capital and the returns we hope to generate, my guess is we’re in the later stages of this.”
For Chang, it’s less important for Sylvan Road to grow big than to prove his analysis of the housing economy is the basis to create a sustainable company.