A Different Vision for Housing
A Unique Strategy Keeps American Homes 4 Rent Ahead of the Curve
by Carole VanSickle Ellis
American Homes 4 Rent is a relatively young company. First conceptualized in 2011 when national indices were ranking “improvements” in housing based on the degree to which a market was losing in the single digits instead of double ones, the company was the first Wall Street institution to snap up single-family homes during the Great Recession. That was not at all what American Homes 4 Rent intended to do, however. The founders’ ability to view opportunities and potential threats in the housing market from a completely different angle than the rest of the financial powerhouses of that era has set American Homes 4 Rent apart ever since.
“When we formed American Homes 4 Rent, we had a very different vision than that of our peers later,” recalled David Singelyn, CEO and trustee for the company. “While they viewed the 2011 market as an opportunity to buy houses at an attractive price and resell later when the market recovered, essentially taking the opportunity as a trade, we saw it as a chance to acquire homes and create a platform that would truly scale over time while offering residents a chance to live in desirable, affordable homes and investors a chance to invest in a company complete with its own drivers to growth.”
Replicating Success by Starting “From Scratch”
American Homes 4 Rent was first conceptualized in 2011 by American self-storage billionaire B. Wayne Hughes, who is ubiquitously referred to by his middle name. Hughes served as chairman of the board from the company’s founding in 2012 until 2019, when he retired at the age of 85. By that time, the company had nearly 53,000 single-family rental homes under management and was providing housing to roughly 200,000 residents while creating more than $1 billion in annual revenue.
Singelyn credits the company’s wild success in residential real estate to leadership figures who understand many aspects of the real estate market and have great experience and successful track records in other sectors of the market. Hughes himself had founded one of the nation’s largest real estate investment trusts (REITs), Public Storage, four decades prior to launching American Homes 4 Rent and had founded a real estate company, American Commercial Equities, that owns and manages retail and office properties in California and Hawaii.
“In 2011, when even the biggest Wall Street firms were still learning the business, our management and leadership teams were made up of people who had historically been operators of real estate and had cut their teeth on consumer-related real estate,” Singelyn explained. Because of this deep well of experience, early leaders at the company believed it would be important to “start from scratch” when it came to creating the American Homes 4 Rent operating platform and setting the stage for its growth drivers.
“We went through a number of life cycle events to get where we are today,” Singelyn said. “In the early days, we were in the middle of a land and property rush while also building the operating system from the ground up. It was all done from scratch.” The company needed a completely new take on existing operating platforms because it planned to institutionalize single-family rentals – not sell its properties when the market recovered. “We did constantly evaluate what had been successful in Public Storage and other ventures in which our founders had been involved, but that led us to focus on achieving financial flexibility rather than trying to utilize an existing system that did not fit the new company’s needs,” Singelyn explained.
Access to Capital
Financial flexibility manifested as a simple concept and goal: access to capital (and assets to acquire at an appropriate price point using that capital) at all times. Because American Homes 4 Rent looks at its acquisitions in a more permanent light than other institutions in the industry, it is imperative the company always has the financial wherewithal to acquire more properties to grow the business and generate returns. This has led to some creative and far-reaching problem-solving as the national housing market has recovered since 2011.
“About four years ago, we were in a strong growth phase when we realized that the ability to buy single-family homes at attractive prices and below replacement costs was becoming less viable each year as price appreciation recovered from the housing crisis in 2008,” Singelyn recalled. “We realized we had to make sure we had adequate channels of growth in our future, and that meant multiple points of access to capital.” The company immediately began cultivating and refining three channels to capital and acquisition: buying existing homes (the “traditional channel”), acquiring brand new homes from national builders, and developing new neighborhoods via the burgeoning build-to-rent model.
“We started testing the build-to-rent concept wherein we would acquire land, work with our own development team, and build homes specifically for rental,” Singelyn explained. Although the term “build-to-rent” is ubiquitous today, at the time American Homes 4 Rent was far ahead of the curve. The company’s rental homes are also a far cry from other new builds when it comes to bringing value to owners and residents because they are built with preventative maintenance and longevity in mind (see sidebar).
“These are higher entry-level homes than you will see if you buy conventional new construction,” Singelyn said. “We use materials that create a better maintenance experience for ourselves in the long term, that are better for the resident because they are cleaner and more visually appealing, and that are better for the environment because they do not have to be replaced as often, if at all.”
Build-to-rent strategies have another advantage when deployed en masse in the manner in which American Homes 4 Rent has done: They offer dramatic advantages associated with efficiencies of scale. The company often builds 50 or 100 contiguous homes in the same neighborhood, which enables residents to enjoy many of the amenities that would normally come with multifamily living rather than affordable single-family homes. American Homes 4 Rent communities are able to offer top-notch recreational options and services in a single-family format that is accessible to residents seeking to live without incurring the financial strain of a 30-year mortgage commitment.
“Our residents quickly discover that our properties are a valid option for housing that they often did not realize they could access for their families,” Singelyn said. “Our goal is to provide more housing for residents while scaling upward for our investors, always with an eye to minimizing or eliminating risk.”
David Singelyn – CEO 
Bryan Smith – COO
Scaling for Maximum Efficiency & Flexibility
From its earliest days, American Homes 4 Rent has been clear about its goal to acquire large numbers of single-family properties, optimize them for rental performance, and then make the process of leasing and living in the homes as streamlined and pleasant as possible for tenants while maintaining high performance levels for investors. The company’s goal of holding the homes long-term rather than liquidating them made its investment into operating systems far-sighted, but the early days required a lot of innovation and creative thinking, recalled chief operating officer Bryan Smith.
Smith (featured in REI-INK’s November 2020 issue) has been with the company since its inception, first serving as senior vice president of acquisitions, then as senior vice president and director of property management, and then as executive vice president of property management. In 2019, he took on the role of COO. In every position, Smith was deeply involved in and dedicated to the development of the American Homes 4 Rent operating platform, believing it would have to be multifaceted but intensely simple in order to be successful.
“From the very beginning, we have been in the business of making important, unique changes to revolutionize how people enter their homes and use them and what their expectations are for the property and the property owner,” Smith said. “We saw in our early days we needed to apply technology in order to underwrite huge numbers of homes monthly, then scale the renovation platform to optimize property performance, and then interact with the real estate industry and the renters’ side of the industry in a way that would be accessible in a sector not always particularly swift to embrace new technology.”
Smith worked with his team to identify bottlenecks in the acquisition, renovation, and leasing processes to design one of the earliest and, by industry standards, still most successful operating platforms in the market today. He has been with American Homes 4 Rent through multiple updates and modifications as technology and consumer preferences have evolved. “We acted early to bring residents access to information on their mobile devices, sign up for self-tours of available homes, and even apply online and execute their lease if the application was approved,” Smith said.
In 2020, as COVID-19 pervaded the country and other real estate services scrambled to accommodate new regulations governing social distancing and learn new technologies to provide virtual showings, American Homes 4 Rent was already operating a proven, touchless system. “We were able to lease our houses and make housing available in the face of incredible demand because our platform and system were already in place,” Singelyn said proudly.
Designed with Consumers & Investors in Mind
At American Homes 4 Rent, every facet of business operates with the goal of making the consumer experience positive and efficient. This consumer-facing policy is not just about customer service; the company believes it is an integral piece of investment strategy.
“Like many people, I was a long-term renter, so we know firsthand how important it is to make the process and the experience convenient,” Smith said. “The most important piece of any investment is the quality of the customer experience, which is why we are working at present to bring some of the best aspects of classic multifamily communities into our new build-to-rent communities.” American Homes 4 Rent monitors every aspect of the consumer experience from beginning to end, constantly reviewing, evaluating, and scoring company performance internally and using external sources of data as well. Then, they deploy that massive volume of information in company market analysis and investment decisions.
“We have been operators for a long time. We have experience when it comes to identifying what types of homes our residents want and where they want those homes to be located,” Singelyn said. “We have 35 markets at present, which, in conjunction with those three acquisition and capital channels, means we can grow at a much faster pace than most of our peers in the industry.” American Homes 4 Rent employs an entire data analytics team that is constantly evaluating and tracking employment data, job growth, and other market metrics to identify new markets and continually validate presence in existing ones.
“We leverage vast amounts of external and internal data to drive every investment decision, acquisition, and new build,” Smith said. “That is why we make the optimal decisions we do and, in 2021, 2022, and 2023, we are positioned to significantly increase our in-house development and delivery to continue to provide everything
our customers and investors require.”
Sidebar 1:
Far Better than Basic: American Homes 4 Rent’s System for Installing Optimal Systems and Materials for Investors and Tenants
Because American Homes 4 Rent has always had an eye on the long haul when it comes to property ownership, the company’s philosophy on materials and supplies has also been a bit different than other institutional investors in the single-family space. Using internal data and metrics established since the company’s inception paired with the leadership team’s long track record spanning multiple real estate sectors, the acquisition, renovation, and development divisions of American Homes 4 Rent tends to opt for durability and wide-reaching consumer appeal in its rentals that many retail buyers do not even find in their new-construction homes.
“We have a constant feedback loop from the consumer side and the investor side about how to build a better home for both parties,” CEO David Singelyn explained. “That is why we tend to use more durable, higher-quality materials than you would find even in a custom new-construction home in many cases.”
The decision to upgrade is not a purely selfless act, Singelyn pointed out. “When we use better materials—luxury vinyl plank (LVP) instead of carpet or treated lumber instead for outdoor living spaces, for example—we gain a better maintenance experience for ourselves as well as a better living experience for our residents.” He also noted that the company is proud of its environmental track record; LVP can last indefinitely while even the most delicately cared-for carpet must be changed out every few years, and the homes American Homes 4 Rent builds with treated decks do not require annual or semi-annual application of chemical treatments and stains to keep the wood intact.
“When we build a better product for our residents, we also build a better product for ourselves,” Singelyn explained. “And it’s a win-win that we also are not using chemicals or creating high volumes of waste by doing so.”
When the company buys inventory from national homebuilders, Singelyn noted that those properties are often priced higher than the properties his own company builds even though they are often far more basic in nature. “When we build the homes ourselves, we do not incur the same sales and marketing costs that the homebuilder does, nor do we have to build in the profit at the point of liquidation as retail homebuilders must,” he explained. “The benefit is that we get the same income at a lower investment point and, in many cases, better net income because our maintenance expenses are lower and our revenue is higher.”
