A New ‘Vision’ For Turning Renters Into Homeowners

Although delinquencies and foreclosures continue to fall and are now at pre-crisis levels, many lenders continue to sit on large numbers of real estate owned (REO) properties – many of which are considered “bottom of the barrel” and have been languishing for years – without a definitive strategy for how to liquidate them. Many of these homes are barely in marketable condition due to deferred maintenance and zero updating.

Meanwhile, a huge segment of the U.S. population known as the “underserved market” continues to be shut out of the housing market simply because these consumers cannot qualify for a mortgage under today’s tighter lending standards.

The goal for lenders, of course, is to liquidate these properties as quickly as possible – which is not an easy task, considering their condition (most buyers today want homes that not only are move-in ready, but have seen substantial upgrades in recent years). But what if there were a way to get these homes occupied immediately, by people who are willing and able to fix them up, while, at the same time, addressing the “underserved” problem?

Enter Vision Property Management, a holding company with a unique approach to the lease-to-own market. The firm, which has been in business for 12 years, not only helps servicers and lenders more quickly liquidate their distressed and bank-owned properties, but also gives consumers in the underserved market a path to homeownership that they might not otherwise have.

To learn more about the company’s business model, as well as the challenges of operating a lease-to-own business, MortgageOrb recently interviewed Jon Buerkert, chief business development officer at Vision Property Management. What follows are excerpts from our interview.

Q: Vision Property Management has been around for more than a decade now – tell us how the company got started and how it has evolved through the crisis years up until now.

Buerkert: The business model is fairly straightforward – our mission is to turn renters into homeowners. It started with a small package of homes acquired by the two owners and one employee back in 2004, and it was a long-term play. So, we’re putting renters in the homes, collecting the rent, helping them understand what it means to be a homeowner – the necessary upkeep of the home, renovation and how to improve their credit. The goal has always been to restore America’s neighborhoods.

We were a small shop in the early days, but in 2008 and 2009, with the high rate of foreclosure and the flood of REO homes onto the market, we were able to capitalize. And because we had a proven record of getting these vacant homes occupied and restored and performing, we were able to secure some private money that had allowed us to go out and buy two to three to 10 times what had been able to acquire before.

Q: It has been said that the lease-to-own model provides an ideal path to homeownership for people in the underserved market. One of the advantages for these potential homeowners is that they do not have to be subjected to a “deep dive” of their credit history in order to be able to sign a lease. Regardless of whether they take advantage of it, it gives them a chance to restore their credit and “earn” the right to obtain a mortgage.

Buerkert: Yes, it is true that they do not need to be subjected to a deep dive credit check. However, we do require that the customer have a stable job and income and, perhaps more important, the desire to own.

Once a tenant has been paying on time for three to four years, we will approach him or her and ask whether he or she is interested in getting a mortgage and becoming an owner. We have several lenders that we steer people toward, but, of course, they can use whatever lender they like. We do not focus on preparing the borrower for the loan; in other words, there is no borrower education – we leave that up to the lender – but we do prepare them for how to handle things such as maintenance and upkeep.

There is no charge to apply – it can be done all online, and we have strived to make the process as simple as possible for the consumer. Many have told us that this is like a breath of fresh air – the simplicity of it helps put them at ease. And the beauty of this for the renter is, “Hey, this could be your home, you can do whatever you want to it, you can put a fence up, you can put a shed in the backyard, and you can remodel in the way you see fit,” to get them thinking about homeownership.

Q: How are the contracts structured? Is there a set-aside for escrow during the lease period?

Buerkert: Because we operate in 45 states, we set out to have one all-encompassing agreement, to make it simple. This way, we can take a call from Michigan and treat it the same as a call from Florida. The biggest difference with our agreement is, yes, they are just renting, but we give them credits per payment so that they’re realizing an equity position, potentially, in the home. So, when tenants seeing that $50 of, say, a $500 monthly payment is going toward a balance that is owed, that gets them thinking more about how they can build wealth through ownership. We negotiate an acceptable sales price, and then we give them credits for every payment they make. When tenants are ready to cash out, whether they are getting a loan or they came into some money, then we tally up those credits, and that becomes their new, shall we say, strike price – and we’ll draw up, obviously, a new purchase agreement to show that they’re buying it for the new price.

I’ve seen lease-to-own done a lot of different ways, and I don’t know if there’s one way that is necessarily better than the other, but this is what we’ve done, and we’re doing it nationwide, and we’re seeing great success with it.

Q: How often does it happen that a renter gets into a position to buy out his or her agreement? About what percentage of renters move on to become homeowners?

Buerkert: We’re still in the early stages, so I would be remiss to say as of right now. I would say we’re getting just a few payoffs a month, which is nothing compared with the number of leases that we have. We have a seven-year lease – so renters have seven years to get their credit to the point where they qualify and to get the home to an appraised status. So, we’re still very early on with a lot of our customers in that process.

Q: Do you acquire most of your properties from lenders via auction?

Buerkert: Absolutely. We buy homes from all of the major banks and servicers out there – bank-owned and distressed. And what we’ve found that really works is mortgage lenders and servicers are not asset managers – they are debt collectors. So, when they repossess a home – and foreclosures will always occur; no matter what the economic climate is, there will always be people who fall on hard times and can’t make their mortgage payments – there’s a certain percentage of properties that just don’t fit a traditional resale option, meaning, you can’t put this home on the market with a listing agent and expect Mr. and Mrs. John Doe and their two kids to buy it and move into it because it has deferred maintenance. It has a roof leak. It has a malfunctioning HVAC, or there has been some vandalism.

That’s where we come in. We have a good capital structure – we can come in and offer a fair price, all cash, and close quickly, which is an attractive option for these lenders and servicers that are sitting on these nontraditional assets. Not only can we come in and pay a fair price, but we can also get an occupant back in the home and get it back on its feet, so to speak – get it back to a marketable status – to the point where it is a functioning property that’s contributing to the neighborhood and bringing community values up. That’s an attractive sales pitch for these lenders that are sitting on inventory for which they have no plan or process: We buy it, we know how to market it, we know how to rent it, and we know how to sell it. Whether we do a rent-to-own or whether we flip it to a local investor, we have those contacts. We’ve done this for more than 10 years, so we have established a huge buyers list. Although rent-to-own is our predominant business, sometimes it just makes sense to sell a property to that local investor.

Q: Do you engage only in bulk transactions? Or do you also do single transactions?

Buerkert: We do both. If there is a way to acquire a home that fits our “buy box,” we will do it. That includes bulk; that includes one-off; that includes auctions, both live and online; and that includes off-market opportunities, which are presented to us all the time. We are constantly out there, actively looking for new inventory sources.

That’s the two sides of our business – there’s the capital side, because you need money to buy the homes, but then there is the sourcing side; you can have all the capital in the world, but if you don’t know what to buy or where to buy it, then the money is pointless. We’re very diversified in terms of how we acquire these homes. In fact, we sometimes get calls in our call center from owners who see our sign in someone’s yard and say, “Hey, you want to buy my home?”

But for right now, I would say about 90% of the properties we own came from major banks and servicers – they were either distressed or bank-owned.

Q: What are your areas of operation currently?

Buerkert: We’re in Florida, all the way up to Maine; predominantly, the bulk of what we’re buying is east of the Mississippi River – Indiana, Illinois, Ohio, Pennsylvania – and, from there, down into the Southeast. But we’re not afraid to buy any property in any county as long as it fits our buy box.

Q: Are you connected in any way with the major single-family rental (SFR) companies that are out there? Do you do business with them in any way?

Buerkert: Not really. We’re both kind of value-add, but just in a different way. The SFR market is all about the short view, whereas we are all about the long view.

Q: Do you make any level of investment in the properties before they are rented? If so, how do you determine what you’re going to do and what the tenant is going to do?

Buerkert: After we acquire a property, there are often critical maintenance issues that have to be dealt with, and if it needs a new roof, power or water source, we’re going to get that done. But when it comes to things such as carpet, paint, upgraded appliances or fixtures, we leave that up to our occupants. We sell them on the fact that this is their canvas, and they can do what they want with it. So long as they’re making payments and we are not getting notices from the city, we are not going to be bothering you.

The little wrinkle to that is that sometimes, there is one repair that is needed that a tenant just can’t do. If that’s the case, then we help him or her do that. Our thought is, if we can get an occupant in the home who is able to handle 75% to 90% of what needs to be done, then we’re happy to help that person out with that last 10% to 25% – whether that is connecting a water line to the well, or putting a new roof on. But that’s a very involved, complex process – and it’s not easy. Fortunately, we’ve been able to compile a large network of local contractors who can do this work. This is also what really sets us apart. We have an account services department that handles all of the payments – but we also have carved out a little department within that so that when a customer calls with one of these types of requests, we have the resources to handle that. It’s a very hands-on approach – we are very communicative with our customers.

Q: What’s your growth strategy right now? We see that there are far fewer distressed and REO properties out there on the market – there are far fewer auctions – and inventory is generally very tight. On top of that, there is the general perception that we’ve reached the “bottom of the barrel” in terms of the REO that’s out there. But at the same time, the demand on the rental side is still very strong. So, how do you plan to grow in this particular environment?

Buerkert: Well, as I said earlier, there’s always going to be foreclosures. But it’s not that foreclosures are our only opportunity to grow. So long as lenders are not willing to lend to certain underserved classes of people, then we’re going to have a business, and we’re going to fill that void.

We see ourselves as eventually having tens of thousands of customers who are doing a rent-to-own program. And we’d like to think that a certain number of them are going to be qualifying for loans and moving upward. But the long-term growth of Vision, itself, is going to be the size of the customer base and, perhaps, offering them additional services that will aid them in their endeavor for homeownership.

Q: Currently, how many REOs are you finding out there that fit your “buy box”? Do you find that you have to do a lot more sifting in order to find the right properties?

Buerkert: You are absolutely right – it is becoming harder because there are fewer good ones out there. That’s why last year, we started to put some mailers out to prospective sellers who might be in the market to sell their homes to us. To be able to use data and analytics to find these people is something new and powerful for us. We have some technology that helps us determine whether a particular home fits our buy box – and it’s helping us make those right decisions. Our success is largely based on pairing the right home with the right renter.

Q: How important are your relationships with lenders and vendors, and how do you go about establishing those relationships?

Buerkert: Well, first of all, let me say that we value those relationships tremendously, and they are absolutely critical to our business. As a matter of fact, I’m going to two or three conferences per year just to meet with the people we buy from regularly and to keep a finger on the pulse of what they’re doing and what they’re forecasting over the next six months to a year.

The servicers and the banks and lenders are the critical main ways we acquire properties, not just because they tend to have the most, but also because their properties tend to be the best kept up. We’ve looked at some tax lien holders – you know, these groups that acquire properties subject to tax foreclosure; the problem is, those homes are so neglected and so far gone. But with the large nationwide banks, they do a good job of keeping up these properties, and that’s really important to us.

Our message to lenders and servicers is simply this: Vision has a plan to take on these harder-to-sell, nontraditional assets. And if we can’t transact, it’s no harm, no foul.

Q: About how many properties do you own now?

Buerkert: They’re at about 6,000 properties now, the vast majority of which are in the Midwest and the Southeast. We’d be happy to be buying 1,500 to 2,000 properties a year – that’s a little more than 100 a month. That’s about our sweet spot.

We’re in a real comfortable position, from an operational standpoint, right now. So, it’s just a matter of how many more customers we can add each month, each year. The goal is to get into the tens of thousands.

Q: How do you go about marketing these rental properties?

Buerkert: Believe it or not, we get most of the interest from renters through our rent-to-own signs on lawns – but the properties are also listed on the major auction websites, including Trulia, Zillow, Auction.com, etc. People searching “rent to own” will find our listings, all of which direct to our website, where renters can arrange a tour and apply online.