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Chad Ryan | The Journal Gazette
Bill Browand is a Realtor with Coldwell Banker Roth Wehrly Graber. He recently sold a package of 100 rental homes to an investment group from California.

Bulk rentals attracting buys

Illustration by Gregg Bender | The Journal Gazette

In December, Bill Browand, a Fort Wayne Realtor, closed a deal selling nearly 100 Fort Wayne homes.

If you’re envisioning mountains of paperwork at the closing table, well, that didn’t happen, says Browand, of Coldwell Banker Roth Wehrly Graber. That’s because the houses – all rental properties, many with current tenants – were sold as a package to one buyer, an investment firm in California.

“It really wasn’t so bad,” he says of the closing, which area real estate professionals say may foreshadow a trend in Fort Wayne.

Traditionally, single-family rental homes have been owned by local landlords. But there’s more interest in such properties from groups or individuals far-flung from the Hoosier State who are buying in bulk.

Lately, hardly a week goes by that area real-estate experts don’t get a call from an out-of-state firm looking for a package of rentals, though many deals don’t come to fruition.

“I have seen recently even one or two out-of-country investors coming here looking to (buy),” says Kyle Ness, president of Upstate Indiana Association of Realtors, also known as UPSTAR.

Credit the area’s reputation for having affordable properties.

“The numbers look just phenomenal on paper,” Ness says when asked why Fort Wayne is seen as attractive by investment groups.

“You can buy a $20,000 property that will gross $6,000 a year (in rents) and nets out $4,000 after taxes, insurance, vacancy and estimates on maintenance. That’s a 20 percent return and that’s considered excellent.”

Lawrence Yun, chief economist with the National Association of Realtors, says the interest in Fort Wayne is a lingering product of the housing bubble.

When housing prices in places such as Phoenix, Las Vegas and Atlanta rose and then dropped, investors quickly moved in to scoop up what they saw as bargains, he says. But, by the middle of last year, as prices strongly rebounded and the supply of lower-priced houses from foreclosures and short sales dropped, those markets became less attractive.

“What’s been happening in the recent cycle is … we’ve seen some investors turn to some more affordable markets in the Midwest, such as Memphis, Detroit and … now Fort Wayne,” Yun says. “They are seeking rental income, and they believe they are still buying on the cheap because Fort Wayne prices did not rise as much.”

Compare it to buying a stock that not only pays regular dividends and also has the potential to rise in value, he says, adding that investors also might be anticipating rising rental income.

Statistics show rents lately have been rising nationally at the fastest pace in six years, Yun says – the result of a dearth of new construction in apartments and single-family houses in recent years combined with increased demand from foreclosed homes’ residents needing somewhere to live.

Browand says he’s not at liberty to disclose the name of the buyer, the seller or the purchase price, except to say the total sale amounted to millions.

He also would not disclose addresses. He says properties were from various sections of the city, but many were on the southeast side, near downtown or on the near north side. Most were single-family homes but there were a few multifamily units.

The seller, from Fort Wayne, was liquidating part of a large portfolio of rentals he’d tried to sell previously as part of a plan for winding down a business, Browand says.

Many of the properties were sold already leased, and the buyer, who is working with a local company to manage the properties, plans to expand holdings in Fort Wayne, he says.

Public records in the Allen County Recorder of Deeds’ and assessor’s offices show in December about 100 properties were sold to Inpro Investment Partners LLC.

The seller was a small group of Fort Wayne concerns controlled by members of one family.

Inpro has an address of La Jolla, Calif., and was formed in March 2012, according to California corporate registration records available online. Its registered agent is listed as Jorge Campello Figueiredo. No telephone number could be found for him or Inpro.

Just how more outside investment in rentals will affect Fort Wayne remains to be seen, says Heather Presley-Cowen, the city’s deputy director of community development.

In the southeast quadrant, she says, the city has been promoting home ownership and conversion of rentals to owner-owned homes as a course to stabilizing neighborhoods, she says, making the sale of large numbers of properties as rentals counter those efforts.

More out-of-town owners also could mean less investment in upkeep and more vacant properties that could become a problem for neighborhoods, she adds.

That’s because in investment packages, profitable properties can be sold along with less profitable ones, and investors may be able to leave some properties unfilled and unattended and still make money.

Indeed, she says, packages may be designed for the purpose of offsetting profits from other more profitable properties elsewhere.

She says the responsiveness of property managers is key.

“If you shop in the same grocery store as your landlord, that’s a whole different conversation than if you’ve never met,” Presley-Cowen says. “Unless there’s good property management … that’s when things can go bad.”

Rents also could go up, she says. If the purchased properties are enrolled in the federal Section 8 program, the subsidized rents are government-set.

But new private owners could decide to raise rents to levels more comparable to their home areas, she says.

Browand says that although the properties were not in Section 8, he doesn’t anticipate rental increases, “at least not initially,” because investors want to retain tenants.

Bud Myers, executive director of the Indianapolis Housing Authority, says that city has seen another effect from the sale of several thousand rental homes in packages to out-of-area investors in the last 18 months.

Many were Section 8 properties, which are seen as more desirable by investors because the federal government guarantees rents will be paid, he says.

But the sales led to an upswing in violations of the agency’s rules and more challenging fraud investigations, he says.

Companies or individuals in Australia, Israel, California, Kansas City and Hong Kong have been among those involved, he says, but it has been difficult to track ownership.

But Browand says he sees the trend as boding well for the Fort Wayne economy because it brings in outside money, and he believes his buyer will be a responsible landlord.

“These guys came through and walked through every property. They spent three days here in town and were constantly calling (addressing issues),” he says.

“It was a ton of work,” Browand adds of the deal, almost a year in the making. “But a lot of the bigger companies out there before weren’t looking at little Fort Wayne for 100 properties. … We’re showing it can be done.”

rsalter@jg.net

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