Private Equity Buyers
There’s a lot of cash on the sidelines looking to be placed in the housing market. This cash is absorbing the backlog of foreclosures, reducing available housing inventory, has put a floor in the housing market and now a big part of the 12%+ appreciation in home prices that we are seeing across the country.
Some are raising their brows to this new trend and worried for things to come. Take a look in the upcoming Forbes article and then ask yourself, how will this trend affect your business? What changes will you make? Then see my opinion at the end…
Buying Adds To Housing Boom. Is A New Bubble On The Way?
Exerpts from the Forbes, June 23, 2013 Issue
Traditionally, buying, fixing and renting out single-family homes has been a mom ‘n’ pop affair. No longer. Billionaires, private equity firms and hedge funds have been swooping into the hardest-hit markets across the country and snapping up single-family homes by the tens of thousands. They’re plucking distressed properties out of the foreclosure pipeline with the aim of playing the housing recovery in the most direct means possible–as landlords.
Despite the challenges, it’s easy to see the appeal of this business to the big players: Properties can be bought with cheap borrowed money and, if past cycles are any indication, should appreciate significantly from their housing-bust lows. In the meantime rents should produce a nice yield.
So far, at least, the big money has done wonders for America’s beleaguered housing market, establishing a floor on prices, revitalizing neighborhoods and sparking housing markets nationwide. No one knows exactly how many of the nation’s 12-million-plus single-family rentals the big players now own, but just since 2011 at least $10 billion in institutional funding has flowed into single-family housing–enough to buy 100,000 homes at $100,000 a pop. Thanks in part to these investments, median home prices in some hard-hit markets from Las Vegas to Atlanta have jumped 20% in the past year, inspiring declarations of “recovery.”
From 2010 through mid-2012 institutional investors’ share of home purchases there grew from an estimated 15% to 26%, according to CoreLogic. As distressed inventory dwindled and prices shot up in Phoenix, institutional buyers moved on to Las Vegas and southern California, then Atlanta, northern California, the Carolinas and Florida. Now the Midwest is hot–Chicago, Ohio’s metro areas, Minneapolis, Denver–even Detroit, for some high-return-seeking companies willing to take the risk.
No one has taken a bigger bite nationwide than Blackstone, the publicly traded investment firm headed by billionaire Stephen Schwarzman. Little more than a year after forming Blackstone’s Invitation Homes, backed by $4.5 billion in capital, it already owns 26,000 homes in nine major regional markets. Its holdings already trump the 10,000 homes owned by Malibu-based American Homes 4 Rent or the 9,900 owned by Santa Monica-based Colony Capital.
“We envision this to be a long-term institutional space,” says Marcus Ridgway, chief operating officer of Invitation Homes. “So our primary focus from the beginning was to do everything in-house.” Invitation Homes employs 1,000 full-time workers, plus 5,000 contractors and subcontractors. In every area it enters it hires market analysts, an acquisitions team, a remodeling team (who oversee the local contractors), a property management team and a leasing team that collaborates with local brokers.
Nationally, it continues to gobble up hundreds and sometimes thousands of homes a week, the majority purchased as one-off sales (the industry norm), during foreclosure auctions, in short sales from banks and, increasingly, from small investors. (One exception: Blackstone recently bought 1,400 Atlanta homes in a bulk sale from the family-owned Building & Land Technology Corp.)
Renovations take two to three weeks and cost about 10% of the purchase price. Most desirable are three-bedroom, two-bathroom homes with two-car garages and a lawn for the kids. This property type attracts families–the best and “stickiest” kind of tenant. While apartment dwellers stay an average of only 1.5 years, single-family home renters stay 4.5 years and typically take good care of the property, since they care about what the neighbors think.
“I think this is sustainable for probably a decade,” says Stan Ross, chairman of the University of Southern California‘s Lusk Center for Real Estate and a consultant to multiple firms plotting public offerings. “But when I look past that, I am not sure how it plays out.”
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If you are in a market that these private equity firms have been buying in, you’ve seen first hand how much they are willing to pay to get their hands on a good rental property. I’m seeing these firms paying 90% of today’s market value, doing a great job on rehab, renting them out to solid families who will take care of these homes and stay in for quite some time (3-5 years).
I see the positives for the housing market…
I also see another positive that others seem to be missing…
If these cash investors are ready to pay those prices, then rather than buy, fix and sell to homebuyers, why not change your business plan to buy and sell quickly, as is, to these equity funds and let them do the rest? You get a quick payday and a hassle-free deal. It’s a win-win for all.
Now the problem is finding these deals… as you can’t look on the MLS or any public for sale website… as that is where these equity firms are buying. You need to look where they are NOT… that means OFF the market, motivated owners. And once you find them, you need to get them to sell you their house at a low enough price for your profit, and give the sellers some money for their fresh start.
Wholesale deals exist – but you must know how to find and close hidden motivated seller deals.
I will be sharing the details with you TONIGHT in my Live Stratety Session “Find Wholesale Hidden Deals” at 6pm Pacific, 9pm Eastern. I expect a full house, so please make sure if you are not registered, you do that right now… and then join me 20 minutes prior to secure your seat. We have limited capacity to keep it intimate… and I would hate to see you miss out.
Talk to you tonight! 
Private Equity Buyers
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