Skip to main content
No. of Recommendations: 8
First of all, I would point out that if you go to the WSJ article about the 'entire neighborhood' being sold, you will see that the builder first rented out the neighborhood of homes and then put the entire neighborhood up for sale as a package: https://www.wsj.com/articles/if-you-sell-a-house-these-days-...

D.R. Horton Inc. DHI -0.53% built 124 houses in Conroe, Texas, rented them out and then put the whole community, Amber Pines at Fosters Ridge, on the block. A Who’s Who of investors and home-rental firms flocked to the December sale. The winning $32 million bid came from an online property-investing platform, Fundrise LLC, which manages more than $1 billion on behalf of about 150,000 individuals.

The country’s most prolific home builder booked roughly twice what it typically makes selling houses to the middle class—an encouraging debut in the business of selling entire neighborhoods to investors.


So it appears that neighborhood of houses was always intended to be rentals, rather than owner-occupied, as the builder got more for selling already occupied rentals to an investor than it would have by selling each home to individuals. And it probably takes less time and money on the builder's part to screen and approve renters than it would have to negotiate with individual buyers. Rental management can be pretty automated now, and generally for the first year in Texas, the builder's on the hook for issues anyway.

From reading the article, it seems to come down to whether sophisticated financial/economic/market analysis can pick home with superior appreciation potential.

But by choosing particular neighborhoods to focus on, they may actually decrease what that appreciation potential is. What I have typically seen is that areas with higher rental occupancy tend to be less expensive and appreciate at a slower rate than areas with fewer rentals. Plus, to eventually sell a rental in order to realize that appreciation, how much updating will need to be done to each individual house in order to get the top dollar? So, I wonder if these investors are truly purchasing the properties in order realize asset appreciation, or if they are just buying them for the ongoing cash flow and tax benefits.

I will say that I don't disagree with the sentiment expressed at the end of the Slate article:

If you don’t want all of America’s land and housing to end up in the portfolios of the 1 percent, there’s ultimately one very simple solution: Tax the rich. After all, the companies buying the houses are ultimately owned by people (or in some cases, universities and churches, which are their own cans of tax-advantaged rich-people worms). At the same time that the working-class is going hungry, rich people are doing so outstandingly well that they are running out of easy places to park their cash, which is why they’re buying 2,000 square-foot houses in the Phoenix suburbs via their ownership stakes in these funds.

AJ
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.