Here's some good news. Some hedge funds are expecting the housing market to recover. And guess what? They're planning to profit off of it.
Flipping Houses 2.0: Sylvan Road Capital is buying up foreclosed homes, renovating them and renting... [+]
A former Morgan Stanley housing strategist who left in May to start his own hedge fund is buying up low-cost foreclosed properties, extensively renovating them and renting them out.
Oliver Chang launched his firm just two days ago and expects to invest over $1 billion in the single-family rental market over the next two years--or 10,000 homes. Sylvan Road Capital said it already has initial capital from a private equity firm to acquire over $300 million in homes.
“America is moving toward a Rentership Society, and I believe the opportunity to purchase and professionally manage single-family rental homes represents one of the most compelling investment opportunities across all asset classes,” Chang said in a statement.
His firm has partnered with three principals of Delmar Realty Advisors, a homebuilder and property management specialist firm which already owns a portfolio of home rentals in Atlanta.
Chang says investors would get about 9 % annual yield on their investment, according to Bloomberg News. From Bloomberg:
As an example, Sylvan could buy a home for about $50,000 that needs another $50,000 in repairs, such as replacing windows and air conditioning, plumbing and electrical systems, Chang said. The houses will rent for about $1,250 to $1,500 a month, he said.
By managing the renovations and properties itself, Sylvan can reduce expenses to less than 40 percent of rental income, which is close to the cost of managing multifamily rental properties, Chang said.
There's been an increasing number of hedge funds and private equity funds looking for returns on their investments in what's become a difficult environment to do so. One way some are going about is buying up foreclosed properties and renting them out. Hedge funds including John Paulson'sare said to be interested in buying up foreclosed properties and then renting them out for a profit.
Critics of the investment strategy say hedge funds and private equity are in over their heads when it comes to landord/tenant relationships. The concern is that investors would be more worried about their bottom line and getting a return on their investments rather than rebuilding communities.
But with the housing situation showing little improvement with over 1.4 million homes in foreclosure this could be one small solution to a massive problem.
