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Single-family rental giant bets big on house flipping market

Amherst Holdings is putting up $1 billion to fund the launch and expansion of a house flipping operation called Bungalo

Amherst Holdings, one of the largest single-family rental entities in the U.S., is putting up $1 billion to back a platform it can use to sell off homes it has flipped.

According to an article from Bloomberg by Patrick Clark, Amherst owns and/or manages roughly 20,000 single-family rentals and is launching a subsidiary called Bungalo to flip properties, selling them at no-haggle prices in the hopes of attracting buyers who want a simpler home buying experience.

The company has already dropped $225 million on Bungalo’s launch this year and has plans to put up an additional $1 billion in funding to float Bungalo’s expansion efforts.

The service launches this week with 25 homes listed for sale in Dallas and 10 more in Tampa, Florida.

“A lot of the distress in the U.S. housing market right now is not necessarily people upside down in mortgages,” Amherst Residential President Drew Flahive said in an interview.

“It’s really the fact that a lot of these assets have a significant amount of deferred capex. An individual who wants to live in that home knows they have to come up with a down payment and a repair budget,” he added.

According to Bloomberg’s report, confidential sources close to Amherst said the company is raising another roughly $1 billion to purchase more rental properties. Could it be that this is a play to offload older stock at a premium so it can reload its rental stock with newer assets?

Time will tell.

So far, Bungalo has more than 250 homes under repair and plans to expand into “markets people want to live in and are moving to,” according to Bungalo COO Greg Stewart.

This news comes as house flippers profits have gone down in the past seven quarters, according to Daren Blomquist, senior vice president at Attom Data Solutions.

“As it becomes increasingly competitive, we’re seeing the margins on home-flipping profits squeezed,” Blomquist told Bloomberg.

“The traditional home-flipping model is to buy property at a steep discount, add value by rehabbing and sell for a premium because it’s fixed up. These days, it’s tougher to get that discount on the front end.”

A decreasing profit margin in a market where mom-and-pops operate usually signals that competition is too intense in the space for them to continue on and that the advent of a mature market in which institutional investors, like Amherst, are willing to start playing ball is nigh.

Amherst's play here could be an early indicator that institutional investors are about to take over the house flipping market.

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