We all can agree that the housing boom from 2004-2007
was fueled by zero down payment loans, stated income without verification and
“investors”. Many of those so called
investors were just individuals jumping into an overheated market, buying property because they had been told “real estate never goes down in value” then
selling within a short period of time to capture the rising values as the
market saw more buyers than sellers. Well, everyone learned that real estate can go down in
value. In fact, it can significantly decline when the market forces are combined
on several levels to over-inflate demand versus supply. Then the buyer demand
leaves and sellers end up holding the bag.
Often times this is referred to as greed...
Are we seeing those trends in today’s market
as prices begin to climb from bottom prices of 2011?
At first glance it would seem that individual pent-up demand
is driving the market, combined with historic low interest rates. I believe this is a very good portion of the
current trend, but just below the surface of individual desires to own a home
we find BIG MONEY influencing real estate throughout the United States.
What does this mean? Large corporate investors have gone to
undervalued markets such as Atlanta, Chicago, Phoenix, Houston, Orlando, and
other major cities, snatching up single family homes for rental income. This infusion of capital to some of these
markets has made it difficult for an individual home owner, the end-user, to buy a
property. They are competing with cash
offers and these giant firms are buying hundreds or thousands of homes in these
markets. Once closed, they are
refurbished and put in rental pools.
Who are these corporations?
Look up Blackstone Group L.P. (BX). They spent 2.7 billion last year buying 17,000 homes. Another is Paulson & Co. They have purchased enough land
in California, Arizona and Nevada to build 25,000 homes. Is this a bad thing? Hard to say. You tell me. The investors will stop buying once the
prices rise to a level that the return from the rentals does not provide an
appropriate cash flow. What is
appropriate? It varies from corporation
to corporation. Typically they look for a NET of 6% to 8% on the invested
dollar.
Weigh in on this, more to come in my next BLOG bites.
Talk to me,
Rick Bennett
208-407-0532
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