There is a new breed of apartment investor out there that is challenging conventional wisdom by buying up scores of unsold homes and renting them out, and the Multifamily Executive Conference this week, several of them shared their strategies for success.

The single-family housing crisis was a boon to the apartment world, and many owners and developers capitalized by expanding their portfolios through acquisition and development of conventional apartment buildings. 

But to some companies, the troubled for-sale market wasn't just another demand driver for apartments in a general sense, it was a very specific opportunity as well. Investors like Waypoint Homes, Builders of Hope, and American Residential Properties are looking to the empty homes as an opportunity to provide rental properties.

These firms have been busy over the last year buying up pools of foreclosed homes from lenders and turning them into rental properties with unique leasing structures. Sometimes it is a two-year lease with an option to own, and sometimes it is accomplished with custom structures, but the aim is to minimize turnover in these empty homes, which are bought at a steep discount.

But how feasible is this sort of market, and what are the chances of the business model lasting through the next housing cycle? According to Doug Brien, co-founder of Waypoint Homes, this model allows for flexibility and profit in an ever-changing market, but he acknowledges that there are challenges owners need to contend with in this type of asset class.

“We can just sell the homes and still make a profit if homeownership does start to go back up and renter nation collapses," says Brien. But he also says that owning and managing a portfolio that is so geographically spread out requires a lot of technology to keep track of all of the logistics of running each property day to day.

“You need technology to pull off the high-speed cherry picking required to manage these kinds of assets,” says Brien. “Without a strong technology component, it wouldn’t be a feasible business for us.”

It requires a good deal of manpower and boots-on-the-ground to make this type of investment pay off, he says. But since 2008, Waypoint has acquired more than 1,800 homes and is looking to expand its portfolio even further across the nation.

Aside from technology, there are other critical factors to managing these kinds of portfolios. Laurie Hawkes, president of American Residential Properties (ARP), admits that no two properties are the same and often each needs to be treated on an individual basis.

“Family circumstance plays the biggest role in our business,” says Hawkes. “You can expect to see 20 to 25 percent turnover on these properties. It’s lower than traditional multifamily, but it is still early. It is very important that you have an intimate knowledge of each local market."

ARP is very bullish on this business model and plans to take the company public next year as a REIT.

As for the long term potential in this market, it is still a wait-and-see process. But for as long as the housing market continues to flounder, there is plenty of growth potential for REO-to rental properties and with each passing month, more investors are growing interested in this burgeoning opportunity.