One Man’s Quest for a Million Rental Homes
In a niche real estate sector that’s still dominated by mom-and-pop operators, a handful of institutional operators have amassed enormous portfolios of single-family rental homes, sometimes growing even larger through mergers. But, Sean Dobson, CEO of Amherst Holdings, believes he’s built a better mousetrap: acquisitions driven by artificial intelligence.
“We want to get to one million homes in the next 15 years or so,” Dobson told Fortune. That tally is about 16 times Amherst’s current portfolio through its Main Street Renewal operation and management platform, but along with tech savvy, Dobson has demographics on his side.
There are roughly five million U.S. households that are renting single-family homes rather than taking out mortgages. Dobson sees this as a permanent class—and, therefore, a steady customer base. Tom Barrack, whose Colony Capital was among the first large-scale owners of single-family portfolios, would agree.
Even as the economy has recovered from the housing bubble that led to the rise of Colony American Homes, Invitation Homes and others, demand has stayed high for single-family rentals. That’s partly because many consumers are no longer confident that home prices will rise, Barrack told Fortune.
Targeting 1,000 zip codes across 30 metro areas located mainly in the Sunbelt, Amherst nabs fixer-uppers in middle-class subdivisions, “guided by algorithms that help it avoid bidding wars and money pits,” Fortune reported. It then spruces up the properties for the new rental generation, targeting couples in their early 40s with one or two kids.
Dobson was a pioneer in devising sophisticated models to price home loans, and in using the models to find examples of mis-pricing. In the mid-2000s, Dobson’s models predicted a disaster in “Alt-A” securities: packages of loans granted to homeowners who had often refinanced multiple times.
“The market was predicting a default rate of 5%, and our models showed it would be 30% [even] if home prices didn’t fall at all,” Dobson told Fortune. He recruited a group of investors that took short positions in Alt-A and reaped a $10-billion profit when the residential market cratered.
The housing debacle gave Dobson insight into the potential of rentals and their potential for a more stable income stream than apartments. He began buying homes and raising funds. It was slow-going at first, but since 2011, Amherst has raised eight rental-housing funds totaling $5 billion.
For comments, questions or concerns, please contact Paul Bubny
- ◦Economy
- ◦Sale/Acquisition
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