American Home passes on stucco homes. Silver Bay Realty Trust avoids cedar siding.
Investment companies that buy homes out of foreclosure or other distress situations usually can’t get inside them to see what kind of shape they’re in. Nor do they have the time or manpower to do so.
Instead the firms use criteria and processes — some still evolving — to ensure a house is a decent bet to pay off in the long run.
For instance, water can get behind the stucco if it isn’t sealed properly, said Lee Budden, a broker with Keller Williams First Atlanta who has worked for American Home and Silver Bay. Exposed wood is more prone to rot, and requires exterior upkeep.
Investors also want to keep renovation expenses consistent.
On average, Colony American Homes spends $20,000 to renovate a house that it buys at an average price of about $160,000, CEO Justin Chang said. Blackstone’s Invitation Homes spends the same amount on renovations, but is buying for $105,000 on average, said chief operating officer Marcus Ridgway. The company has had very few duds, he said.
“You’re buying sturdy structures,” he said.
The firms typically rent houses for $800 to $1,200 a month.
Colony seeks newer houses, which generally need fewer repairs. Chang said his firm makes sure there are no liens on the home, and they’re buying them free and clear. If it meets those criteria, workers drive by for a look at the exterior. Often, Chang said, problems with siding, trim or a roof can be spotted that way.
Blackstone wants “cookie cutter” homes – three bedrooms, two bathrooms, about 2,000 square feet, Ridgway said — that are close to transportation and employment centers.
“We have a standard,” he said. “We want to make sure the property can be a home for somebody.”
Aaron Edelheit, CEO of American Home, said his company looks at crime statistics in addition to historic home values. He doesn’t want to own houses in areas he wouldn’t feel safe sending employees. The company now buys off the multiple-listing service, not at foreclosure auctions, because Edelheit wants to see inside before buying.
When he worked for American Home, Budden looked at between five and eight houses a day, taking as many as 200 pictures at each. He checked everything from the condition of the mailbox to whether there was rot around the windows. Over time, the checklist grew from two pages to 11.
Investor companies buy everything from light fixtures to electronic door locks in bulk to save money and make it easier for maintenance workers. Owners try to cluster homes near each other so maintenance workers will waste less time driving.
Experience with renters on a mass scale has led to some changes. For instance, Edelheit’s firm learned that refrigerator ice makers are prone to breaking and not worth the time to repair.
“If the home has a garbage disposal, we rip it out,” he added. “The disposal immediately breaks. People put metal down there.”