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It is hard to imagine a U.S. real estate firm managing 15,000 rental units. That would be large by anyone's reasoning. But Waypoint Real Estate Group in Riverside, Calif., thought it might do that one better. With 1,200 already purchased, they are not just looking to expand to 15,000 rental units, they are looking to purchase 15,000 homes to use as rental properties, treating the business as if they were running a factory assembly line.
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"We think this is a huge opportunity and we are going to treat it like a factory and create a production line to do this," Colin Wiel, a Waypoint co-founder told The New York Times.
There is no question that history is full of cases where an entrepreneurial spirit has turned worthless vulcanized goo – and here the starting point is hardly worthless properties. Waypoint is purchasing homes in the range of $130,000 and stands ready to sink an additional $25,000 or so into upgrading the homes to get them to where they are viable as rental units.
This solves a few of the basics of the housing market. It takes vacant, crumbling properties and keeps them from falling into further disrepair and bringing down local property values. It puts the the property tax base back on its feet. It can put families with hammered credit scores back into decent homes and provide an opportunity for rent-to-own.
And what if it works? Foreclosure marketplace RealtyTrac says there are 650,000 foreclosed properties in the United States owned by banks -- banks that do not want to be in the real estate business. There are an additional 710,000 homes where the owners are at least one month behind on their mortgage loans.
Banks across the country have been bulldozing homes they cannot sell to get rid of huge insurance risks. This solution might be a touch more elegant than that.
It takes a perfect storm for this all to take place. The average price of homes is 34 percent below the 2006 peak. That helps. Each foreclosure means there is a family displaced, so the demand for rental properties is up. That helps, too. There seems to be no end to available properties, either.
But then there are the risks, which stagger the imagination. There may be pent up demand for housing, but how can a family that could not afford a mortgage magically cover that mortgage through a rental agreement that also includes a profit margin? Even if the price of the home is now 34 percent below its peak, margins are apt to be very thin.
Talk about putting all your eggs in one basket. What if Waypoint, for some reason, goes belly up? The firm intends to sign two-year leases, which could put a bankruptcy mess in limbo for a long time. Beyond that, is anyone ready to foreclose on 15,000 homes all at once?
Time will tell.
In international markets Tuesday, the Nikkei 225 index in Japan fell 0.59 percent, while the Shanghai composite index in China added 0.47 percent. The Hang Seng index in Hong Kong rose 1.31 percent, while the Sensex in India rose 0.68 percent.
The S&P/ASX 200 in Australia gained 0.18 percent.
In midday trading in Europe, the FTSE 100 index in Britain slid 0.22 percent, while the DAX 30 in Germany shed 0.29 percent. The CAC 40 in France gave up 0.75 percent, while the Stoxx Europe 600 dropped 0.47 percent.
