15 for ’15
The single-family rental business was white-hot in 2014 and shows no signs of slowing in the coming year. One of the catalysts for that growth has been the development of a residential finance model to give small investors access to credit. While 98% of the nation’s estimated 14 million single-family rental homes are owned by smaller investors, 10 million of those are not financed due to restrictive lending.
One of the first companies to seize the opportunity to offer loan products for these smaller rental investors was B2R Finance, started in 2013.
“When we started B2R Finance it was a game changer for rental property investors,” said Jason Hogg, CEO at B2R. “Though our product filled an unmet demand, originating into a new asset class can be tricky.
“Many of the properties were distressed and appraisals were often based on as-is or foreclosure comps. Understanding this, our team stepped back and implemented a strong investment discipline, relying on data based on a broad range of data points, including close relationships with our investors,” Hogg said.
B2R Finance originates loans on the potential cash flow of the investment property, not on the investor’s personal debt-to-income ratio, so the company relies on market data to assess the potential cash flow of a property and uses FIRREA appraisals to assess value.
“Our position as first into the market gives us an opportunity to design and create technology solutions that mitigate loan risks while providing a suite of products and tools that enable our investors to become better landlords,” Hogg said.
In order to develop a methodology that could assess the commercial value of a residential property, B2R looked to foreign markets, where this type of underwriting methodology had been used for years. They then developed their own approach to limit exposure in good and bad markets.
“We’ve relied on a regimented test-and-learn methodology. When we launched B2R, the market research led us to believe that our average loan balance would be significantly higher than testing demonstrated,” Hogg said.
“We focused our products and services on the smaller investors after examining results against a backdrop that 15 million single-family
rentals in the U.S. are owned by approximately 8 million investors.
“Consequently, building an infrastructure to support their success has been a core pillar of what we’re doing as a company,” he said.
B2R’s disciplined approach to assessing property cash flow allows it to mitigate risk and gain a clearer picture of the potential of a property. And its personal approach to customer service means that the company takes the time to get a deep understanding of its clients’ goals and provide guidance throughout the process.
“B2R is a company for investors by investors, and we know we have valuable information that will add to our investors’ success,” Hogg said.
“We remain bullish on the outlook of rising asset values and support our investors with superior technology and data, but also mitigate any downside with an extensive network of property management teams that can assist in the event of default,” Hogg said.
Growing an asset class
The company is developing a modular, multi-tenant platform that will enable it to support a number of partnerships and will continue to expand its offerings into areas such as short-term financing options.
B2R is also looking to leverage its platform in 2015 to expand its services to entrepreneurial investors through technology and content.
Fast-forward two to three years from now and B2R hopes to be originating a residential-style product to investors nationally.
The company hopes to offer a suite of products and services built off of a technology platform that can provide instrumental data to its customers to help them analyze cash flow and properties and, ultimately, optimize their returns.
“Our goal has always been to serve as ‘the investor’s friend’ and to build up the class of residential property investors. As an asset class that continues to gain in equity, we hope to attract new investors to the space and will continue to build new and better products that support new and seasoned investors,” Hogg said.
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