UPDATE: Beazer Homes To Form Rental Unit, Starts In Phoenix

Beazer Homes USA Inc. (BZH) hopes becoming a landlord will carry it through the worst housing downturn in decades: The builder is acquiring newer homes in distress--including some it built--and renting them out.

The Monday announcement shows just how desperate the industry has become: Builders are unable to compete with bargain-priced foreclosures, some located within walking distance of new homes under construction. It's also an acknowledgement that many consumers cannot buy homes or they no longer consider housing a sound investment.

That's forcing builders to find new ways to make money. Both Toll Bros. (TOL) and Lennar Corp. (LEN) have turned to working with distressed loans.

"Making money building homes in 2011, and even 2012, is going to be very challenging for the builders, so I expect more of them to consider creative ways to compete," said John Burns, head of John Burns Real Estate Consulting.

Beazer, one of the nation's largest home builders, did not return a request for comment.

The company launched its program in Phoenix, one of the areas hardest hit by the housing crisis. It completed its first home purchases last month and expects to have more than 100 by the end of this fiscal year. The idea might be expanded to California or Nevada, two other hard-hit states brimming with foreclosed homes.

Beazer provided no detail on rental rates. Phoenix has a 9.7% vacancy rate, one of the nation's highest and well above the national 6.6% rate, according to the latest data from Reis Inc. Effective rents, meanwhile, are $681 per month, well below the national $986 rate.

Wells Fargo doesn't expect the new venture to add much to the bottom line anytime soon.

"After layering in operating expenses, we do not believe the return is that attractive, given the potential risks of acquiring additional inventory," Adam Rudiger, an analyst with Wells Fargo, wrote in a client note. "We are skeptical of any home builder's ability to efficiently manage maintenance of a diverse set of properties in a cost-effective manner."

The builder said it wants to resell the homes once the market improves.

Shares of Beazer were recently trading down 1 cent at $4.61.

-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com

--Tess Stynes contributed to this report.

Beazer Homes USA (NYSE:BZH)
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