Watchhttp://www.zerohedge.com/news/2012-11-27/bulk-investors-and-real-estate-recovery
It's time to take a closer look. There is little data available pertaining to bulk investors and even less meaningful analysis. Historically, Wall Street has never been active in direct ownership of single family homes, so there is no past histrory to learn from. We need to start from scratch. How big are these bulk buyers? A few months ago, I read a report that Keefe, Bruyette & Woods estimated Wall Street had raised $6 billion to $8 billion so far, which is really a paltry sum in the world of high finance. It is impossible to estimate how much...
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If it were easy, every house in America would have been bought up in the 80's by those buy houses with Zero down and find renters to pay the mortgage schemers.
They wouldn't have even made seminars, because they would have just cornered the markets them selves.
Lets say you buy up a few, and that's easy enough to manage, then you buy a few more, then a year latter a few more. Eventually all it takes is just ONE bad summer where 80% of your tenants either can't pay, decide to relocate, or buy their own house. To really fuck up their empire.
Each unit could take up to 3 months to find suitable tenants, that have a good credit score and a verifiable job.
As it was shit like that that ruined many many many of these entrepreneurial clowns in the 80's that thought they found an easy way.
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San Jose, CA
Very good article. Totaly agree.
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San Jose, CA
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I didn't read the article, but this is what has been going on in the recent years. The big investors typically buy in areas with a high CAP rate, not the coastal areas. After purchased, they would approach the current owner or tenant with a couple of options.
1) I can continue to lease to you.
2) are you interested in buying your house back? If yes, I can sell it to you at today's price with seller financing at say 8%-10%. In 2-3 years, you can refinance and pay me off.
3) they can do a 2-3 years lease-to-own. In a lease-to-own scenario, the tenant is responsible for all repairs.
For the above reasons, the investment money can be recycled. Waypoint is a good example. You can study up their business model.
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I don't see how this will end well for the investors.
Perhaps in the short term while we're living in a cooked book economy.
But eventually reality has to sat in, and the exposure on all of those properties will have to hit these banks hard.
Upkeep, Maintenance, Tax, then eventually deflating rents from market saturation of available rentals, and lack of homes to buy. Coupled with YOY income decline across the board.
I think of it as these investors and banks are only temporarily taking a turn, holding the Wild Cat's tail. Eventually they will have to let go, after they clawed and bitten enough.
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Laguna Beach, CA
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"Investors" always assume they will get the best tenants who don't wreck anything, and pay on time.
The reality is hardly that.
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Goran_K says
Nothing is perfect. It's a number's game. Why do you think investors are willing to take risk buying at courthouse steps? Because the reward outweighs the risk.
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Laguna Beach, CA
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True, I'm not saying any entrepreneurial endeavor with potential profit isn't going to be riddled with risk, but all I'm saying is many tend to underestimate the problems of being a landlord, only seeing the potential rental checks instead.
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Atlanta, GA
The SFH purchases by venture capital firms is reaching crazy levels...
http://www.sacbee.com/2012/11/25/5008543/big-investment-firm-buys-hundreds.html?source=Patrick.net#storylink=cpy
A single investment company was the buyer in 10% of all transactions in Sacramento County! I think the volume of purchases by big investment companies is still too small to have a national impact, but I think they are definitely having a local impact. I've read similar articles about Phoenix and Atlanta.
Responding to CaptainShuddup's point... I agree, if investing in rentals was so easy, we probably would have seen a lot more of it in the past. With that said, it's all about margins. Today, it seems investors are willing to jump in because the margins are too juicy to pass up (low house cost combined with high rents). If the bubble reinflates, they'll sell their assets and move on to another investment with higher returns. I'm oversimplifying but I think this is what we're seeing. If the price is right, investors will buy. That doesn't mean the price is right everywhere. It just means that the price is right in some locations. I think it's very different from city to city. For example, I think San Francisco is still caught in a huge bubble.
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Atlanta, GA
What would really "F-up" their empire is if home prices fell a lot more. Then they could find themselves undercut by competition with a lower cost-basis.