RALEIGH — A California company that buys single-family homes and coverts them into rental units has recently bought more than 80 houses near Raleigh and more than 50 houses in Charlotte.
American Homes 4 Rent out of Malibu, Calif., is trying to profit from rising home prices by buying thousands of houses across the country and charging rent, The News & Observer of Raleigh reports.
The company is joining several others across the country that have been given billions of dollars from pension funds and private equity firms to buy houses. They are focusing on markets that have plenty of homes under foreclosure or have lost massive amounts of value in places like Arizona, Florida, Nevada and California. The foray into the North Carolina markets has started in the past few months.
Property records show that American Homes 4 Rent has paid nearly $13.3 million in cash for 81 houses in Wake County since late December. Most of the homes have been priced from $130,000 to $220,000, with the average price around $164,000. The company also has bought more than 50 properties in Charlotte in recent months.
American Homes 4 Rent hasn’t started listing the homes it has bought in North Carolina. The company did not return calls seeking comment from the newspaper.
The company is part of a new trend in the home market. Institutional investors have invested at least $5.4 billion for purchase of single-family rentals nationwide during the past 18 months, according to Barclays, and an additional $8 billion is expected to be invested within the next couple of years. American Homes 4 Rent has picked up a $600 million investment from the Alaska Permanent Fund, a $45 billion fund that invests royalties the state collects from oil companies.
Minutes of a meeting the company had with the Alaska Permanent Fund Board of Trustees last year reveal its business plan. The company said it targets homes with about 2,000 square feet that are less than 15 years old and are in neighborhoods with better-than-average schools. The company said it paid around $65 to $75 a square foot for the first set of homes it bought and expects vacancy rates of less than 5 percent.
But some analysts said that plan could create problems, especially in markets like Charlotte and Raleigh that did not experience as much overbuilding and price fluctuations as other areas of the U.S.
“I think that this influx of institutional capital into the residential market is creating a bubble within the housing bust,” said Mark Vitner, a Wells Fargo economist in Charlotte. “It will end once the investors that are putting money into the funds come to realize that there are much lower-risk ways to earn the returns that they’re seeking.”
Vitner said the buying spree could make the area’s housing market look better than it is, and values could suffer if rental companies suddenly decide to get out of the business and sell their houses.
“It’s not a bad strategy, there’s just a lot more risk than I think people realize,” he said. “It surprises me that we’re seeing this much speculative behavior in the housing market after having gone through the bust that we went through.”
American Homes 4 Rent’s entry into the market has been welcome for some sellers. Daniel Creswell, a 35-year-old pastor at a Wake Forest church who has flipped six houses since the market crashed in 2008, fended off a number of low-ball offers for a northeast Raleigh house he picked up for $162,500 before American Homes 4 Rent showed up. The company offered $210,000, or $10,000 below his asking price. They settled on $213,000, which was $1,000 more than the house originally sold for in 2002. The company also paid closing costs and the home inspection.
“They didn’t ask us to fix anything, either,” Creswell said. “They just bought it. It was the easiest housing closing I’ve ever been a part of. … They were a dream buyer.”