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It all depends on so many factors in so many neighborhoods. Each individual property must be asessed for it's potential and needed repairs, then the neighborhood itself, then the potential renters. And this over several cities. All would depend on the quality of the managers hired. To attempt this on a large scale, especially when it has apparently been tried and failed in the past seems risky to say the least. How can one man oversee such an operation the more it grows? How much of your portfolio would you be tempted to invest in such a outfit?

Also of note in this very interesting article:

Redbrick's first fund, which started with $3 million of equity and has used borrowings to acquire about $10 million of properties,

After reading the article, I think he probably does have a business; he's not shooting for short-term profits turning the houses over but is treating this as a wide-scale rental business with appreciation as a benefit, not a major profit center. However, since he is using a lot of leverage to do this, I think it would prudent to still try to hedge at least some of the $10 million he has borrowed.

The houses are the collateral for his loans, obviously. This is the typical financial structure of a private rental operation. Public REITs sometimes go for 2 debt to 1 equity.

It is inefficient to hold real estate for pure equity. The return isn't high enough to justify it and the tax consequences aren't great. When instead debt provides the majority of the capital, you get a combined interest deduction and depreciation allowance close to the overall cash flow. Tax liability is therefore minimal.

An example may illustrate this. Suppose I can borrow at 6, the gross cash flow is 12 percent of the price, and operating expenses take 1/4 to 1/3 of those "sales" (which is going to vary, as I operate - fluctuations in percent rented etc). Depreciation allowed is typically 27 year straight line, call it 3.5%. Let the capital value be a million, and first suppose I use all equity. Then I get -

120,000 cash flow
30-40,000 expenses
80-90,000 net
35,000 depreciation deduction
45-55,000 taxable income
15-20,000 taxes
60,000-75,000 net after tax

Not a high return. And some of that is just return of capital. Now instead I expand to 3 million property value with 2 million in mortage debt at 6%. Same equity as before.

360,000 cash flow
90-120,000 expenses
120,000 debt service
120-150,000 net
105,000 depreciation deduction
15-45,000 taxable income
5-15,000 taxes
105,000-145,000 net after tax

A much more respectable, equity-like 10.5 to 14.5% after tax return. Note that taxes paid barely moved, despite a 3 fold jump in gross. That is because the equity portion of the financing captures all the benefit of the depreciation deduction. Debt is already a tax efficient form of capital (a deductible business expense) without needing to share in the depreciation.

The net and the depreciation should be close, but one should always be paying taxes even when the operating fluctuations go toward the high expenses side of their expected range. More leverage than that and you start running nominal losses, which is tax inefficient and can complicate borrowing.

Public REITs have readier access to capital than private rental companies, so you might think they could afford to run more leveraged operations. In practice, though, they compete with other REITs for conservative investors. Financial stability is highly valued therefore. So they tend to the 1/2 to 2/3rds debt range. While private firms often go higher (to 3/4 e.g. - above 4/5 is known to be distinctly unsound and banks usually won't lend that far).

For what it is worth.