In late 2008, when houses in Antioch were selling for 65 to 70 percent below the peak, Doug Brien and Colin Wiel started talking. Both were seasoned Bay Area real estate guys, but even amid the economic and subprime-mortgage meltdown, that figure caught their attention. The two clean-cut Berkeley grads, both in their 40s, had met through the Keiretsu Forum, an angel investor group Wiel had started up locally. The Antioch situation was a great opportunity: Two guys with money in hand, both keen on cash-flowing real estate, both stunned by Bay Area homes selling for under $100,000. So they decided to have lunch.
The two were soon driving around Contra Costa and Solano counties in Brien’s navy blue BMW, with area real estate agent Tom Hennigan spouting block-by-block intelligence from the backseat. The detritus of the mortgage disaster was everywhere, from “the Crest” in Vallejo to the San Pablo lowlands, and all along the Highway 4 corridor between Concord and Oakley—“the busiest stretch of freeway in the Bay Area,” says Brien. Antioch, Pittsburg, Fairfield, Vallejo: These communities had ballooned to house a growing Bay Area workforce that couldn’t afford to live closer in, but now they were shaded dark red on heat maps tracking the nation’s foreclosure devastation.
Home prices here had run up so irrationally during the exuberant period that when the economy tanked and values plummeted, banks hoping to recoup some value started unloading the reclaimed homes at a deep discount, which reset values lower and lower, in what Wiel describes as a “death spiral.” Homes were going for 80 cents on the dollar, and then 64 cents, and so on. “We were thinking this was unlike anything that’s ever happened,” recalls the dark-haired Wiel, a serial entrepreneur who looks like an unlikely hybrid of a Santa Cruz surfer and a Boy Scout.
He and Brien figured that the best way to understand the market was to just start buying. The first house they snapped up was a three-bedroom, 1,170-square-foot rambler on Maple Street in Pittsburg, offered by the bank for $90,000. They put in a lowball bid, and because no one else was out buying, they got it six weeks later, in January 2009, for $65,000. (The prior owner had paid $410,000 in 2005.) While waiting for the bank to lose patience, they bid on another home, and another. “People all told us we were absolutely crazy to be buying. Things were just so bleak,” Brien recounts. Luckily, the former NFL placekicker, drafted by the 49ers straight from Cal, has the stomach for putting himself on the line. When he retired from football in 2005, he was known for having missed two potential game-winning field goals in the final minutes of the 2004 New York Jets vs. Pittsburgh Steelers AFC divisional play-off game—but he was also one of the top 10 most accurate strikers of all time.
When the two business guys—Brien had made the unlikely move of getting an MBA while playing pro ball—ran the numbers, they confirmed the attractiveness of the rental play. They figured that with an $18,000 renovation, the Maple Street house could rent for $1,595 a month, or just over $19,000 a year, yielding close to a 15 percent annual return on their cash outlay, minus expenses. Wiel and Brien assumed that once the market caught up and home prices started to rise, the return would be more like 8 to 10 percent, and even that, they thought, seemed impossibly high. Other real estate ventures, such as multifamily apartments, office buildings, and retail properties, were generating returns in the 5 to 8 percent range. “But what we realized,” says Wiel, “is that core Bay Area single-family houses, probably for the first time in history, could generate more cash flow than any other class of real estate investment.”
The two figured they had six months to exploit this Wild West moment before big real estate players swooped in or the market turned. So, with $1 million
of their own money and another $1.5 million borrowed from the bank, they jumped in, grabbing a three-bedroom Pittsburg home within commuting distance
of San Francisco and Silicon Valley that was selling for $55,000; Vallejo ranchers in Solano County going for $75,000; Bay Point bungalows for $110,000.
About 10 houses into the game, they had another revelation: Despite headlines declaring the fall of home ownership, the people they were meeting—even those with wrecked finances—still very much wanted to own homes. So they ran a new set of numbers and found that if they created a rent-to-buy option and, in four to five years, sold the homes to the residents for about 40 percent more than Waypoint had paid for them back in 2009, they could generate an additional 10 percent annual profit. The key would be choosing tenants who both wanted and were able to buy, which would help the pair mitigate the biggest risk of the rental business.
“If people don’t take good care of the property, and move out frequently, you can lose all your profits to renovation and vacancy,” Wiel explains. They would ask for 3 percent of the minimum purchase price up front for an option to buy, do a quick fix-up, and, at the time of purchase, credit tenants $200 a month toward the down payment for every month they had rented. Hence the name they chose for their new company: Waypoint.
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