Staying True to the Mission: The American Dream

“Just about everyone’s American Dream is to own their own single-family house. If they can’t own it, then they want to rent it,” says Bruce McNeilage, co-founder and CEO of Kinloch Partners, Kinloch Homes, LLC, and Harpeth Development, LLC.

If you think his corporate titles are lengthy, wait until you see the trail McNeilage, a Michigan native who now divides his time between Nashville, Tennessee, and Atlanta, Georgia, has been blazing over the past decade.

He and co-founder of Kinloch Partners, Christopher Zachary, describe their mission as “providing a path to homeownership for new homeowners through new construction, home renovation, and investment in financially distressed real estate properties.”

More simply put: McNeilage and Zachary have dedicated their past decade in business to one of the most underserved populations in housing, the starter-home buyers and would-be starter-home buyers. 

“We work hard to establish routes to ownership, but not everyone wants that. I find when my tenants either opt not to buy or simply never reach the point where they feel able, they stay a long time, creating a really profitable tenant. I will go out of my way to make it easy for them to stay right where they are, renting with me in one of the nicest rentals you could ever find, right up to the point where their needs change,” McNeilage said.

This intense focus on serving the needs of tenants and potential buyers has led to some unique business decisions over the course of the past ten years. “My houses are always for sale to the tenants currently living in them,” said McNeilage. Kinloch Partners offers tenants the option to move to a month-to-month lease after one year of occupancy, promises tenants that they can literally “tear up their lease and buy the house tomorrow” if they like, and seldom, if ever, raises rents.

“If someone is renting one of my houses, paying on time and treating that property the way I would treat it, then why would I want to ever sell that house out from under them or raise the rent? I would not want to change that relationship at any point!” said McNeilage adamantly.

“One-third of my tenants stay about nine years. About one-third stay four or five years, and maybe a quarter move out after a year or two,” he estimated. “It’s very unlikely that once someone moves in, they can find a nicer rental than these new homes.”

Creating Opportunities Out of Housing Affordability

McNeilage and Zachary believe that creating opportunities for new households to purchase homes is not just an opportunity for profit in the development and rental sectors, but also an obligation.

“For 60 years, the American Dream of owning your own home has been on the decline, and that is a very bad thing because the largest asset that most people will ever own is their home,” explained McNeilage passionately.

“In my opinion, if we do not reverse the downward trend of homeownership, that could be our biggest societal failure of our generation,” he concluded.

Kinloch Partners does not just talk the talk. They also walk the walk. For McNeilage and Zachary, this means creating homeownership opportunities that are sustainable for both the residents of the property and the owners of the developments. Sometimes, the residents become owners, and sometimes, McNeilage acknowledged, the residents simply have no desire to make that transition. In the latter situation, he gladly rents to those long-term tenants at affordable rates and on empathetic terms [see sidebar].

“I’m a provider of moderately priced housing. My job is to create and provide middle class, obtainable housing, whether that takes the form of single-family homes, condominium projects, or apartment complexes, and whether my customers ultimately choose to buy or rent. Either way, we’re providing housing that is usually completely out of reach to our consumers, and that makes the concept of ownership more appealing,” he said.

For example, in the Atlanta, Georgia, metro area, McNeilage and his company have purchased tens of millions of dollars in residential real estate since the housing crash. “I started buying rental houses that were brand new in 2005 and was renting them out en masse,” McNeilage recalled. “I was six years ahead of the game, but I didn’t know then that I was a pioneer. Then major investment companies started doing what I had been doing and asking me to do it for them. They would rather buy 50 houses from me than buying one at a time off the MLS. That’s how I got started in the Southeast.”

Affordability & Profitability: A Combination that Just Won’t Quit

Today, Kinloch Partners is still buying, building, and developing brand-new, high-end single-family rentals and even entire single-family rental communities in Atlanta and the surrounding metro area thanks to McNeilage’s foresight.

“The business model works because we have a drive not just to grow in the cities where we currently operate and make ourselves money, but we also have a broader goal, to create opportunities for people to own their own homes in places where they otherwise might not have that chance.”

Best of all, Zachary added, the two have the luxury of being in control of their mission. No one can “pull the strings” or tell the two what to do if they agree that their investing and development decisions serve their greater goals.

Those goals look slightly different in Nashville, Tennessee, where McNeilage and a partner, Rachel Franks, first purchased what they describe as “a very out-of-favor, half-empty apartment complex” in 2011. The two updated the facilities, gated the community, and spent the next year working hard to create “something the neighborhood would become proud of.”

The project was such a success that he and Franks decided to erect a 100-unit affordable, high-quality condominium project, ultimately named Solo East, on the three acres adjacent to their now-attractive multifamily development. “It was a $25 million project in an area that was on the fringe of transition at that time,” recalled McNeilage, who was rejected outright by the first 15 lenders he approached for funding.

When the sixteenth banker finally decided to fund the deal after encountering McNeilage and his well-worn presentation at a luncheon, the development quickly began to take shape. As it did so, local media and, not surprisingly, local Millennials took notice. The project garnered so much attention that when McNeilage’s development company, Harpeth Development, put the condos up for sale, they held the event at the Tennessee Titans’ Nissan Stadium in order to accommodate the crowd of eager buyers.

“We sold 34 condos in two hours,” McNeilage said proudly. “Even during the second phase with a price increase we were still $50,000 less than any other pre-construction condo project in Nashville at that time.

“I had been carrying that presentation on Solo East around in my truck for months by the time we finally got that deal done,” he recalled. “Because that bank, Franklin Synergy, took a chance on us and our venture, it seemed only right to take a chance on our buyers. That is how we arrived at the idea of a $500 down payment (literally one-sixth of what conventionally would have been required) that would ultimately be worth many times what buyers paid on the day of closing.

“Next time I start selling Solo condos, I may have to rent out the local NHL hockey rink, Bridgestone Arena because Solo East was so successful,” he laughed.

“If you make housing affordable, people will buy it and it will help them out,” McNeilage said. “Your reputation will be that you helped them own their own home and that you helped that area grow, kept recent graduates and young professionals living there, and improved the overall economy in the area.”

Still Forging Ahead

Kinloch Partners recently entered a new market with that same “making-attractive-housing affordable” strategy in mind. Earlier this fall, McNeilage and Zachary announced their intention to purchase 20 homes for nearly $4 million in five Greenville/Spartanburg, South Carolina, communities. The homes were all built in 2016 and 2017, and Kinloch Partners will lease them to qualified applicants and then sell them, upon request as always, to those tenants using their “proprietary rent-to-own strategy.” The two closed on more than a dozen of their target properties just last month.

McNeilage observed that flat wages in the area along with escalating real estate prices “have made homeownership more difficult” in the area. He expressed confidence that his investment process, which is already successfully generating income for other development projects and creating new homeowners in Georgia and Tennessee, will be successful in the Greenville/Spartanburg area as well.

“Our goal is always to help create more stable communities by creating a path for homeownership wherever we see opportunity and using whatever strategy is most appropriate for that market,” he said of the move into a third state. “Our intention is to build a portfolio of more than 100 houses in this area,” he added.

Perfect, Profitable Synergy

McNeilage and Zachary are so determined to provide access to housing that is affordable to first-time buyers and to local renters in their areas of operation that sometimes they find that their goals weigh heavily on their bottom line. However, McNeilage says, it is vitally important for developers to find a way to meet the next generation of first-time homebuyer’s needs.

“Millennials have lived a very different type of life from their parents. They have huge student loans to pay back. They have other debt. They have not spent their young adulthood saving up a deposit for their first house because they spent their young adulthood during the housing crash and the Great Recession,” he explained.

Because of those heavy debts and a completely nontraditional mindset about homeownership and community living (Millennials tend to view it as a positive far later into their 30’s than previous generations), today’s first-time homebuyers are often more than willing to invest in a condominium instead of a single-family residence.

“They start out believing buying a house may not be the best financial move for them, but when they see a product like our condos with some built-in equity, granite countertops, stainless steel appliances, and is not any more expensive (and is often less pricey) than a nice apartment, buying starts to make sense,” McNeilage explained. However, condo projects, unlike single-family rentals, sometimes require some long-term vision.

“You might starve for three years between when you hire an architect and get your development approved by the city council and when you finally deliver your project and get the money in your pocket,” he observed. “To build a $25 million condo project, you need a lot more funding than you do to invest in single-family. The single-family rental business is what creates the income that sustains these vitally important, substantial projects in Nashville and elsewhere.

“That single-family business also recently allowed me to have the ability to do what I would say is an even bigger thing: create wealth for 121 other people in Nashville, almost all of them Millennials,” McNeilage added.

A Perfect, Profitable Partnership

McNeilage and Zachary have known each other since they were five years old, when they attended Kinloch Elementary School in Dearborn Heights, Michigan. “We were newspaper boys together, aluminum can collectors, mowed lawns together. We started profitable businesses together when we were seven years old!” recalled Zachary.

When Zachary left Dearborn Heights for college and business school elsewhere in the state, McNeilage headed south to Florida State University, where he obtained a bachelor’s degree in economics before promptly entering the financial management field and flourishing. When the two reconnected seven years ago, they bought their first investment property together the following week, and Zachary brought more than two decades of experience in financial and corporate strategy to bear on McNeilage’s vision.

“He was instrumental in our ability to go from a startup focused nearly exclusively on the single-family home segment to servicing the build-to-rent and single-family home markets,” McNeilage said. “Together, we’ve been able to stay true to our mission and provide homeownership opportunities to people, not just rental opportunities. The option to buy enriches everyone in a community whether they all end up buying or not.”

Kinloch Partners is a privately held real estate partnership formed in 2011 by childhood friends Bruce McNeilage and Christopher Zachary. The company has offices in Kennesaw, Georgia, and Franklin, Tennessee. Learn more at kinlochpartners.net.