JERSEY CITY, N.J.—On a recent Tuesday morning, Alan Dixon, an investment manager originally from Canberra, Australia, stood in front of a four-story townhouse here, one of the latest assets he purchased for his company's shareholders.

Mr. Dixon's company, US Masters Residential Property Fund , bought the home on Erie Street in this city on the Hudson River waterfront for $830,000 in September. Inside, workmen installed subway tile in the bathrooms, preparing the three-bedroom home to be leased for $3,295 a month, "like something the people from 'Friends' would rent," said Mr. Dixon, referring to the TV sitcom.

US Masters, a real-estate investment trust that has raised $276 million, primarily from Australian retirees, is one of a handful of foreign firms that are betting on the U.S. housing recovery by buying houses at discount prices.

The business of buying-and-renting houses, long dominated by local mom-and-pop investors, has morphed over the past two years into one of the hottest investments on Wall Street. Dozens of pension investors and private-equity firms, such as Blackstone Group LP and Colony Capital LLC, are clamoring to buy homes in beaten-up markets, sometimes using money from foreign co-investors.

But only recently have foreign firms jumped into the pool. Similar to U.S. firms, they are seeking high returns by renting out the houses initially and eventually selling them into what they are betting will be an improving housing market.