American Homes 4 Rent

Wayne Hughes our founder started public storage and grew that into successful company the mini warehouse industry was a very fragmented mom-and-pop industry Wayne saw an opportunity to institutionalize that he saw a tremendous demand for the product and started to attract investors eventually attracting institutional capital going to lien dollar eat that they are now he's a capitalist he wants to allocate his capital to areas that are going to grow in value and produce cash flow eventually he started looking at single-family houses and he knew there was demand thought that this might be a good investment opportunity my name is Jack Corrigan I'm chief investment officer and chief operating officer of American homes program all of the senior executives at American homes for rent have been former executives at public storage each of us with that experience saw how could successfully be done on a national basis and a business model that had never been proven before when we start our operation in Las Vegas we bought five or six houses and they rent it up real fast and made a decent return on them and so they thought well let's try this again they went and they ended up buying about 40 or 50 and everything was going perfectly so they decided that this could be a real business today we're in 41 markets buying properties we don't want to overpay for assets whether it's in Atlanta or North Carolina or Indianapolis we want good deals that we can rent out at a good yield we have a very disciplined focus on what we're buying we have I would say a very homogeneous product the first step in that position process is to identify properties that are going for sale we then shrink that list down based on our acquisition criteria first thing is as they all say location location location we evaluate markets and MSAs and a whole before we enter them we'll do an initial scrub four subdivisions zip codes and cities that we already know we don't want to be in you know a lot of bars on the windows of these areas that just don't fit the company profile that we're trying to build we want them to be in markets with good good jobs and population growth a lot of what's driving rental demand and and value are good school districts our second criteria we're buying homes that are built in 1990 or newer you're gonna get a better quality asset that's gonna be around for longer a minimum of three bedrooms two baths two-car garage and then from there we go on to our underwriting and all the numbers have to make sense on an average month in the state of Texas we underwrite about 4,000 homes to buy roughly 8% of that we begin to underwrite that actual property we have a lot of resources in the office here to help us establish those numbers the construction department helped us figure out exactly what it's gonna cost to rehab a home leasing agents that are experts to help us ascertain what the home will rent for and we have access to MLS and help us get a value for the home we have two basic forms of acquisition one is on market through the MLS and other is trustee sales which is the auction an on market side it starts with the broker bringing us the deal that's listed either on the MLS or some sort of listing service they'll have to go out to take a video of the home so before we even start our underwriting process we now have a walkthrough by the broker their description of the home MLS description or AVP will then establish that fair market rent for the home the fair market value for the home and what the home is likely to need is being able to get it rent ready at that point we write an offer on the home the auction is a totally different process than our MLS process it's kind of a free-for-all we've established a system to eliminate the chaos that goes on down there with these sales no one knows what's gonna get cried I no one knows what they're gonna buy probably have a hundred or so people there to buy properties it can get pretty hairy 13:8 yep I sold a Brooklyn importer your pal nah turkey our bigger trustees will have anywhere from two hundred to five hundred properties and because we don't know what's going to get pulled you have to assume that every single property is going to be cried so maybe now there are institutional investors both at the auction and competing against us on the MLS side so we have to be more creative and work harder to find those good deals today as soon as we acquire the property we immediately get somebody to change the locks and we order our initial pest control for the property and get all the utilities turned on the landscaping taken care of right away from there we send it off to our construction superintendent by nature the construction and maintenance department is a coordination and management group we do not self perform the work that we actually undertake we just oversee the performance of it coordinate the performance of it we have three classifications of maintenance we have our preventative which is primarily accomplished during the rehab process reactive maintenance is if an individual's living in a home something breaks on it just a normal day to day basis non-emergency they can communicate to the maintenance department and we will go ahead and engage and send a contractor out to go ahead and rectify the problem on the flip side of that we have our emergency maintenance response as well emergency maintenance we take very seriously these are items that would put either the home or the individual in harm's way those are performed around the clock 24/7 365 relationship management with our vendors is extremely important we've developed quite an extensive national list of general contractors that are strategic partners with us that we have in each and every one of our markets I think the list is now well over 3,000 general contractors throughout the country and we manage each one of these on an individual basis we assign our superintendents by zip codes by regions and make sure that they have a good working relationship with our general contractors to make sure that they are basically on a first-name basis that they can reach out and really feel like they're a part of each other's day-to-day life and we also have learned that the more general contractors that we can get the quicker that we can get these done we go through what's called our prep return process where our contractors can best assess what needs to be done during the preparatory process we also have our in-house construction management team evaluate and develop the scope of work they perform a 240 point inspection on the property based on our quality control measures they determine what needs to be done to the property and then they communicate that to the contractors and our strategic business partners in the renovation rehabilitation side where they come in and actually assess value or cost typically will have four major expenses in our properties that we'll look for so along with the little things our four biggest expenses will be other appliances so we'll immediately check the appliances and make sure that they're all in working condition and our flooring and our paint our other two biggest expenses in our homes and then the last thing is landscape and a lot of our markets the homes have sat there for quite a while so we'll get them in the grass to be dead or not going to be taking care of me outside of home so we're here in get a wood court in Plano Texas in the Hunters Glen subdivision which is an excellent a rated subdivision it is right down the street from the Bethany elementary middle school a nine rated school this property is a four bedroom two and a half bath and this constitutes one of the traditional mid-range product for our portfolio it does have a first-floor master bedroom which is a very popular for this area we purchased this home at auction for two hundred eighteen thousand five hundred dollars the performer rent is $2,250 a month purchased with a performer yield of six one with a renovation budget just over $29,000 we came in we're ten thousand dollars below our construction budget on this particular property we did have to do quite a bit of exterior working paint extensive wallpaper removal new carpet a new refrigerator we had to replace the HVAC system if you looked at the outside of this home right when it was at prep for turn it was very poorly neglected the grass was horrible it was knee-high in the back as well the flowerbeds completely overgrown the exterior of the home was very dirty had moss mold growing on it this is a great example of our ability to come into a neighborhood where there is a blight on the street of a home like this that is in foreclosure we're able to clean it up and make it one of the nicest homes on the block what we're trying to accomplish is a renovation process not a home improvement process but a rehabilitation process to where we're bringing the home back to the value that it was initially it is really our targeted goal to make it as resilient against the life cycles that it's going to experience with tenants to prevent deferred maintenance or our long term maintenance costs down the road we've taken great care in trying to determine things like what is the best value for life span on appliances flooring products even paint exterior finish materials roofing materials things like that as a result of that as you know it's like anything else if you use a better product you're going to have to pay a slightly higher price for it fortunately for us we have been able to achieve economies of scale through sheer volume in most markets where we might have had five or six main general contractors before now we'll have ten 30 general contractors and they'll have they'll only be working on maybe 10 to 30 homes at any one given time we continually add to that we actually have a person in the company that that is all they do every day we reach out and try to grow our vendor base reevaluate the ones that we currently have and get the best ones the ones that are meeting our expectations and our timelines the volume that we do has helped us greatly in being able to leverage some of our prices we've been able to tell our strategic partners that we're doing these kind of numbers very large numbers and and we're growing and it's helped us ago she ate some local pricing regional pricing and national pricing we need to get refrigerator delivered tomorrow and it's not necessarily from our Nashville guy but it's the same fridge and they have a local we'll do that when we started out we were able to finish about five homes a day and that we were using at that time under five hundred vendors our vendor base now has grown to over three thousand vendors and we're at a pace of where we can finish about 90 homes a day we haven't really relied on any one specific large vendor per se we want to have a very large pool to choose from and in a lot of ways I think it's really helped to speed up our renovation times and it's helped us lower our cost we're trying to get our homes turned in some cases within the day property management division is responsible for all the leasing the maintenance and the rent collection and management of the property's property management department consists of 170 employees and we're managing properties in 16 states we have scaled dramatically this year and have executed almost 7,500 leases in the past six months typical renter as a family it's someone who may be looking for something larger than they could find on the multifamily side I may have been a former homeowner and in light of the housing crisis is now looking at option for them as a viable option we've designed the corporate structure around scalability reliance on technology and one of the things that we've focused on is leaving leasing responsibilities in the tenant interaction at the local level on the other hand we've taken a lot of the traditional property management function and centralized some of those functions in our on the administrative side the rent collection delinquencies evictions and we also have a national call center for maintenance calls thank you for calling American elm strength this is Gary speaking may I help you the call center serves a couple of purposes number one it is the primary source to answer telephone calls from our 800 our toll-free number that's posted on the website collateral material in other forms of communication and secondarily it serves to answer all overflow calls that go to our leasing agents office first and are not answered in rollover the call center really changes the game because customer in this day and age really is trying to get as much done in the least amount of time and they're calling from mobile phones they're calling from cars as they're driving by properties and the customer wants an immediate response I definitely can help you out with that let me get some information from you the quicker we can answer that call and get somebody in to see what our houses the quicker we have an opportunity to take them off the market it's all about opportunities more opportunities that you're able to speak to the more opportunity to get to show your houses and more opportunities you get to convert them to tenants when we first started looking into building the property management company we recognized the importance for shortening the lease cycle time by lease cycle time I mean the time from when the tenant initially contacts us to when they're able to actually tour the property through the application process and the lease generation as we went into this business we noticed that that cycle time was as long as eight days in the traditional model we shortened it down be able to do it easily and in one day when we go into a new market we analyze it from an acquisitions perspective we traditionally would establish a partnership with a local third party property manager that property manager would allow us to get up to speed quickly on area schools demand they give us visibility into their portfolio which in many cases was in the fifteen hundred home range and they would continue to manage our properties until we reached a large enough scale that it made sense to internalize we have one market that's considered stabilized in our company and that's the Las Vegas market stabilized meaning we're not buying or acquiring a consistent pace anymore given us some insight into renewal rates tenant retention rates expected term of tenants and we've had a chance to look at our turn costs for those leases that have expired and the tenants have vacated we've been very pleased with the results when the markets are stabilized the acquisition activities is at a very manageable pace and we're really managing the existing tenants terns renewals and it's more of the traditional property management function one of the benefits for internal property management is that were allowed to give feedback to the acquisition team we have great feedback on demand great feedback on rental rates we're able to share that knowledge across markets in many cases so some things that are discovered in a particular marketplace can quickly be deployed throughout the nation another NOPA the nice things that we have the national presence as we grow into new marketplaces is we're able to build a brand nationwide we're at approximately 18,000 homes and we're buying approximately 1800 homes a month this is a new never before truly defined process so far we've done pretty well

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