Single-Family Rental (SFR) is an idea born several years ago in the U.S. with the premise that large investors can buy many houses across the country at depressed prices. The investors will then become landlords to rent the houses until that glorious future year when the investors sell the houses at large profits in that great housing rebound that must eventually arrive (knock on wood).
The marquis investor is Blackstone and today's Bloomberg article reminded us of the scheme.
As a natural contrarian, we find flaws in the logic. Our instinct is that one cannot rely on the house flip. If the business works as a true long-term buy-and-rent model, then push the business down that path. But we doubt the rental business works. Landlords are like bankers - you never get the benefit of the doubt in a dispute with your customer.
Further, there is this nice-sounding philosophy that "many Americans should be renters rather than buyers, so the SFR business helps this trend." Well, maybe, but there's a reason the landlord business is tough - both as reputational quicksand and finding black ink on the bottom line. The renters are tenants - they don't have owners' incentive to maintain the property. A successful mega landlord business will need an ingenious and cost-efficient network of property managers. It's never been done for single-family houses to our knowledge.
Is anybody making money or breaking even yet? Our guess is "no" - but we could be wrong. The Bloomberg article highlights American Homes 4 Rent (AMH). But this young company hasn't hit break-even (see 10-Q).
Yes, it's far too early to say profits will never appear or that ROE will always be anemic. But the Landlords should not assume they'll win as Flippers.
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