How foreclosures & FBI probes changed single-family real estate investing

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Today, single-family residential real estate is a multi-billion-dollar, national industry. But as recently as a decade ago, almost no one had heard of SFR.

The market for single family rental homes was considered too chaotic, too dispersed, too unmanageable — the equivalent of herding cats. Institutional investors put their money into multifamily properties, while smaller operators dominated the residential property market.

But Doug Brien and Colin Wiel did see potential, and they made a long play on it even though they often questioned their sanity, as they explain in their engrossing new book The Big Long, which Kirkus calls “an engaging story of entrepreneurial passion and business success.”

Brien and Wiel — a Super Bowl–winning placekicker and an AI expert and stock market investor, respectively — met in the Bay Area in the days following the 2008 housing market crash and conceived a plan to rebuild the devastated housing market there, one house at a time.

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A different philosophy of capitalism’s role

As the book title indicates, Brien and Wiel’s philosophy contrasts with the one showcased in Michael Lewis’s 2010 book The Big Short (and the star-studded 2015 film based on it), which tells the story of stock market outsiders who cashed in on the carnage in the real estate industry crash that was precipitated by weak underwriting standards and predatory lending.

Rather than exploit the market’s weaknesses in an industry that targeted working- and middle-class people, The Big Long shows how the two believed that entrepreneurial thinking could create a profitable company while allowing families to live in the houses they were evicted from when the loans on them went bad.

Image Credit: tommaso79 / istockphoto.

Rapacious capitalism

Brien and Wiel saw an opportunity to buy homes in foreclosure on the cheap (they bought their first one for $65,000; it had been valued at $410,000 just two years earlier), renovate them and rent them out. They looked at the housing market in the Bay Area and believed these properties would regain their value when the market inevitably rebounded.

They used pioneering, custom-designed tech platforms to calculate what they should spend on individual homes, what rent to charge and what their return on investment should be.

All the while, they kept in mind that each vacant house in these abandoned, derelict neighborhoods represented a painful history of a resident or a family who dreamed of owning property and was taken advantage of by rapacious capitalism.

Image Credit: chameleonseye / istockphoto.

A waypoint back from foreclosure, an FBI probe

They called their company Waypoint Homes to symbolize the way that the homes they were renting out could form a foundation for the residents’ journey back toward homeownership.

Brien and Wiel had much more in mind than building a profitable company. They knew that if they were right in going long on in the single-family residential sector, they would create a new industry. They knew that the efficiencies in their system would transform SFR housing into a huge market.

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Admitting mistakes and failures

They gamely admit some failures. They once accidentally bought a home between a gas station and an “adult” shop. “That was a fail,” they note, dryly. After mixing up an address, they put $25,000 into renovations on the wrong house before realizing their mistake.

The most dramatic period they recount was when they were subject to criminal investigation.

Desperate to build their portfolio before others realized the potential of the industry, they hired the wrong guy to buy homes in bulk at foreclosure auctions and he was arrested for bid rigging, a federal offense.

To their horror, the FBI served them with subpoenas. What followed was two-and-a-half-years of waiting to see if they would be prosecuted, which could result in as much as a decade in federal prison if they fought the case and lost. (Brien’s wife, Shanti, a criminal defense attorney, was sanguine that their case would result in charges.)

In the end, the FBI lost interest in Brien and Wiel and charged other players.

Image Credit: domoyega / iStock.

A merger with Starwood and ringing the NYSE bell

Ultimately, these two entrepreneurs built a nationwide company with 500-plus staff, $3.5 billion under management and annual rents of some $125 million.

Burned out by the stress of constant fund-raising money from investors, they decided to merge with Starwood Capital Group, which at the time had $50 billion under management.

They went public under the ticker symbol SWAY, and Brien and Wiel triumphantly rang the bell at the opening of the New York Stock Exchange in February of 2014.

Then Brien and Wiel encountered the differences between being entrepreneurs and being executives, losing freedom over the company they built and losing the opportunity to think creatively and move quickly, and, ultimately, they moved on.

Image Credit: DepositPhotos.com.

Another opportunity in real estate, another start-up

They two reunited when they saw another new, giant opportunity: modernizing the property management business, a nearly $5 billion-a-year industry mostly stuck in a mom-and-pop mindset in the age of Uber and Lyft.

Their new company, Mynd, started out in property management and has since expanded to become an end-to-end real estate investment platform for the SFR sector.

For aspiring entrepreneurs, Brien and Wiel share some of the principles they adhered to in building Waypoint Homes and Mynd.

Image Credit: DepositPhotos.com.

Building Solutions

When testing their conviction that single family residential could become an industry, they constantly asked themselves, “What are we missing?” They built their solutions with their own hands, they committed to working with only good people, and they created a business model that was fueled by purpose, not just a drive to make money.

And they went into business with audacity, they say. Their model may not be for everyone, but those who want to create something big and new may have to follow their advice: “You have to jump out of the plane and hope you have a parachute on your back.”

To order your copy of The Big Longclick here.

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This article originally appeared on Mynd.co and was syndicated by MediaFeed.org.

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