Investors see a Gold Rush in Foreclosure to Rental Properties

Cat Damiano

Mortgage Wars
A San Francisco-based company that buys foreclosed homes and rents them out is finding that the stampede of private cash into the nascent single-family rental sector is changing its business plan: it’s already cashing out.
Landsmith L.P., which has amassed a portfolio of more than 250 occupied rentals in Phoenix, said Tuesday it has sold a package of 75 homes to an undisclosed institutional investor for $7.5 million, a substantial markup from the $5.3 million, before management and renovation costs, that the company paid to acquire the homes over the past year.

Landsmith buys foreclosed homes either in courthouse auctions or through normal retail listings. Its plan is still to hold onto the homes for five years or so. “But if people are willing to pay a price that lets us realize an upfront return, we don’t need to wait,†says James Breitenstein, the firm’s chief executive. “The potential for this asset class is being realized sooner than we thought.â€
Eager to jump into the sector, investors such as Oaktree Capital Management and Colony Capital have raised hundreds of millions for the task. But with few bulk sales from banks and mortgage investors Fannie Mae and Freddie Mac, the market has been dominated by smaller outfits like Landsmith that buy homes one at a time.

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Investors See a Gold Rush in Foreclosure-to-Rental Properties - Developments - WSJ