Investors snap up inexpensive homes in Twin Cities

When they arrived in the Twin Cities from London, Jane Green and her family moved into a stale corporate rental apartment. Why, she wondered, weren't there any decent single-family houses to rent?

She saw a gap in the market — and a business opportunity.

Green started buying single-family houses around the metro area and created a profitable small business renting them out. She now owns 27 rentals, mostly houses, and the formula has been so successful, strangers are asking her to help them put their money in the Twin Cities rental market.

"I have a line of people waiting to invest," said Green, who is working with investors in Israel, London and New York City. "It's a very attractive market for European investors mainly because of the large corporate presence here, good schools and affordability compared to London."

In the midst of the recession, single-family rentals were primarily the domain of reluctant landlords — people who had a mortgage that exceeded the value of their house but were forced to move. But in 2013 and 2014, national investors went on a buying spree in the Twin Cities, acquiring several hundred single-family houses and renting them out.

Now, individual investors are gobbling up small houses in the Twin Cities, which has helped drive the supply of affordable house listings to the lowest level in a generation. Many of these investors are attracted by investment returns that are higher than those in stocks, bonds, commodities and savings accounts.

"I look at this as a sideline, just like how people have stock portfolio investments and a 401(k)," said Mike Corneille, a Twin Cities marketing executive who has five homes that he rents out.

Of the investor purchases, nearly 20 percent are by people who own fewer than 10 rental properties — and a growing share of them are from out of state, mostly Texas, California and Georgia.

Jason Stockwell of ReMax Results in Eden Prairie said that he has a long list of clients from out of the country, including a woman from Beijing who owns several long-term rentals in Minnetonka and Edina.

This niche has given rise to an entirely new industry of companies that cater to these single-family residence investors, firms that help with transactions and property management.

One firm, Roofstock, has created a virtual clearinghouse of information about investing in homes to rent, including 3-D tours, title reports, financial statements and valuation reports, enabling investors to buy without ever setting foot inside the house.

"We're trying to democratize investing in this asset class," said Gary Beasley, chief executive of Roofstock. "We've built an ability to buy anywhere in the country from anywhere in the world."

Jane Green, for example, pays Twin Cities-based Lion Rock Property Management Services to screen tenants, collect rent and deal with maintenance problems.

Brenton Hayden, founder of Twin Cities-based Renters Warehouse, said that in 2011, unintentional landlords represented more than half of his firm's customers, up from about 10 percent two years earlier. Today, the company has become one of the largest in the country with more than 17,000 homes being managed for more than 12,000 investors across the country.

Bob Feland, a marketing specialist for Renters Warehouse, said that most of the investors he works with own just four to 10 properties, and many were originally reluctant landlords like Corneille.

Before getting married, Corneille and his wife each owned condos that were worth less than they paid. Until they were able to sell them and break even, they rented them out. It was an experience that helped him build the confidence to buy his first house for rental two years ago; he's now in the process of buying his fifth.

Corneille said that when he started thinking about getting into the business, several people tried to dissuade him. They tried to spook him with horror stories about bad tenants, including the tale of the relative who owned a rental property that got trashed by a renter's pet monkey.

Corneille's strategy is simple. He's willing to spend $120,000 to $220,000 for the worst house in a good neighborhood and fix it up. He's not interested in doing any of the rehab or management work himself, so he hires subcontractors and lets Renter's Warehouse handle the leasing.

"My model is to hire everything out," he said. "I look at it as if it's an investment portfolio, not a second job."

Several years ago, North Carolina-based OwnAmerica developed software to help the big institutional investors buy thousands of houses, but the company has adapted that software to serve much smaller investors like Corneille and Green.

"We kept buying the data, repackaged it and are making it available to every investor," Greg Rand, the company's chairman, said. "It was built for Wall Street, but is being made available to Main Street."

OwnAmerica isn't a brokerage, but the company also acts as a matchmaker between property owners and investors all around the world. The company is offering a portfolio of eight single-family rental houses that are scattered across several Twin Cities suburbs. The online listing for the portfolio, which is priced at just over $1 million, includes a financial analysis that shows a 7.27 percent return.