I am co-managing one of the first buy-and-hold SFR funds that is crowdfunding for equity (in addition to being open to direct investment from individuals). We are up and running with significant equity commitments and operations having commenced earlier this year. This is in many ways similar to the Blackstone / Carlyle model but applied on a single market (where they are not present). We see a number of advantages to this model vs. the traditional turnkey or direct purchase models, including but not limited to:
- Diversification / reduced volatility – by owning a fraction of hundreds of properties rather than 100% of a few properties
- Better alignment of incentives with those managing the business – I don’t doubt that everyone has the best intentions, but in a direct ownership / turnkey model the investor makes money over time when no one on the ground is nearly as incentivized as the investor is to make the properties perform, whereas the investor typically pays the bulk of his fees upfront. In a fund model the investor makes his money over time and the economics to the managers are in large part directly tied to the return we achieve for our investors
- Reduced management time / ability to be hands off – we would suggest that for most accredited investors, the amount of time it takes to properly understand and optimize the performance of the business, even if it can be achieved at all from a long distance and without becoming a specialist, is probably better spent on other activities
- Benefit from greater economies of scale than one can achieve with individual purchases – everything from materials purchasing, rehab crews, property management etc.
- Advantages on debt – specifically:
- Funds’ debt is non-recourse to investors whereas individuals’ debt is typically fully recourse to their other assets in a worst case scenario
- For many foreign investors debt leverage is not available at all or not on competitive terms, so this is a particular improvement for foreign investors
- Enhanced exit scenarios, specifically becoming attractive as an institutional roll-up, with the better potential exit valuation that may drive vs. a one-by-one sale scenario
We have bought and managed 2000+ homes in a range of markets for institutional investors in the past few years and so definitely bring best-in-class management experience to the venture. Projecting 16-20% IRR to investors, i.e. 2.7x cash-on-cash at mid-case in a 7 year hold scenario meaning projecting $270K total cash return for each $100K invested. Naturally I should clarify that this is open to verified accredited investors only. Obviously I am aware there is a healthy debate on BP about the degree to which investors choose to be "hands on", and ultimately that is of course an individual decision, but wanted to make everyone aware that this is another option available. Feel free to reach out directly if you would like further information.
