Wall Street vs. The Small Investor: Who Wins?

Michael Zuber (0:01)

Folks, is Wall Street over single-family home investments? Obviously, there's been some new regulations about the size and who can and can't. But obviously, there is that massive loophole of billed for rent. But you know what, folks? I think Wall Street Journal is figuring out that being a single-family landlord is hard, and they might be looking to do something else. Let's have that conversation with Dana, the CEO of Hemaline. How you doing, Dana?

Dana (0:28)

I'm great.

Thanks for having me. I think this is a hot topic, because it goes two different ways, one with AI and one without AI.

Michael Zuber (0:36)

I'm going to love your experience on this, because again, I've been around long enough to... I actually remember the day, like it was yesterday, when I first heard that Wall Street was buying single-family homes. I want to call it 2009 It might have been early 2010 But the reason I remember it like yesterday is I was running a process. Every Monday morning in my market of Fresno, California, they would do what they called a load. And what was a load? A load was the foreclosures or REOs that were processed the week before. They would all be loaded on Monday morning at 8 a.m. Between 8 and 8.15, they'd all be loaded. And then by the end of Monday, I would figure out which ones I was offering on. And I figured out that I could offer 19% below list price, not 20, because 20 they wouldn't take, but they would take 19

And by Tuesday or Wednesday, I'd have two houses in contract. And I did that for 18 months, just like clockwork. And then I remember one Monday, nothing loaded. And I'm like, that's weird. Maybe it was a data issue, upload issue, whatever. I wait for Tuesday, nothing.

Then the next week comes, the next Monday. I'm like, oh, maybe someone who's on vacay. I mean, you could tell yourself any number of reasons, right? The next Monday comes, nothing again.

And I'm like, okay, what's going on? Something is...

Dana (2:02)

Yeah.

Michael Zuber (2:02)

So I called my escrow officer and a couple of real estate agents who I had done dozens of deals with. And they said, Michael, you're not going to believe this. I said, what? He goes, Wall Street bought the entire book. I'm like, what do you mean they bought the entire book? Well, as you know, we load, we have this load, right? That's their vocabulary that we would do every Monday. They bought every home. You know what was worse? They paid list price.

Wow.

And that day, the market changed forever.

Dana (2:36)

Yeah.

Michael Zuber (2:36)

Wall Street showed up. It was crazy. I remember like yesterday. Yeah.

Dana (2:40)

Well, and I think that, my experience is kind of a twofold with it. And you have a different experience with it.

Wall Street side that has tried single-family homes. When I talk to... Every single one of them, it's the same sentiment. This is harder than I expected. We thought that we could get an economy of scale and efficiency, but every single home is uniquely different.

Everything is so much more challenging to do. We don't like being dispersed in these markets. And kind of the model that they work with, with Grey Star of like, hey, buy an apartment complex, put an on-site manager, and all of the units are in one area, and I can see them all, and I just look at just those ones, and I can forecast what a turn is, and I have a standard cost for everything. That works so much better. And so most of the more institutional investors I talked to, who've been in it, in these markets, see if tier two, tier three markets are very anti-single-family homes at this moment.

Michael Zuber (4:13)

They should be. I mean, this is the problem. This was the error of their ways, again, buying the entire book.

Ask somebody who had looked at the entire book for 18 months, so what would that be? 52 plus 26, 78 weeks in a row? I can tell you, all the houses were not equal. Some of them were completely trashed, some were tiny, some were brand new, and they're all different. They're all different, unique. So again, buying the entire book just because it was cheap, it might have worked, Dana, for the first six months, but once they showed up, prices started to zoom up, and the market was vastly different. So this is why, when I talked to them, and I did talk to them probably a year in, because they came to me, and they're like, hey, you were doing this for a long time.