Private equity investors buying US homes

[imuafool]

Wendy: I have been informed by TMF that METAR is considered a financial board and will stay open.
Let’s stay on-topic, METARs. Keep METAR the investment board that helps us all see the big picture of the Macro economy.
—————————————————-

I agree.

Here’s a recent snapshot/status of an ongoing major macro-economic change and trend about private equity firms/investors buying an increasing share of U.S. homes. Here’s one of many articles on this topic.

2/17/2022 Investors Are Buying a Record Share of US Homes
Some 18.4% of homes were purchased in Q4 2021, worth a total of nearly $50 billion.
https://www.globest.com/2022/02/17/investors-are-buying-a-re…
Excerpts:

• Homeownership continues to be a popular investment, especially for investor groups.

• Real estate investors bought a record 18.4% of the homes that were sold in the U.S. during the fourth quarter of 2021, according to a new report from real estate brokerage Redfin. That’s up from 12.6% a year earlier and a revised rate of 17.4% in the third quarter.

• Although investor market share hit a record in the fourth quarter, the number of homes bought by investors declined 9.1% from the third-quarter peak—but it’s up significantly from pre-pandemic levels.

• Investors bought 80,293 homes in the fourth quarter, up 43.9% from a year earlier. The housing-supply crunch constrained home sales for all homebuyers, including investors. The drop from the third quarter is also due partly to seasonality.

• Just over three-quarters (75.3%) of investor home purchases were paid for with all cash in the fourth quarter.

• According to Redfin’s analysis of 40 U.S. metros, investors bought the biggest share of homes sold in the 4th quarter 2021 in relatively affordable Sun Belt metros, i.e., Atlanta 32.7% , Charlotte 32.1%, Jacksonville, Fla 29.8%, Las Vegas 29.2%, and Phoenix 28.4% Single-family homes made up about three-quarters (74.8%) of investor purchases in the fourth quarter. That’s near the highest level on record, essentially tied with the third quarter (75%), and up from 72.2% a year before.

• Redfin economist Sheharyar Bokhari commented: “Investors are chasing rising prices because rental payments are also skyrocketing, incentivizing investors who plan to rent out the homes they buy. The supply shortage is also an advantage for landlords, as many people who can’t find a home to buy are forced to rent instead. Plus, investors who ‘flip’ homes see potential to turn a big profit as home prices soar.
Investors buying up a record share of for-sale homes is one factor making this market difficult for regular homebuyers. It’s tough to compete with all-cash offers, and rising mortgage rates have a smaller impact on investors because they often don’t use mortgages at all. If home-price growth slows in the coming year, investor demand may cool down because rental price growth will slow, too.
Lower price points are still popular with investors, and I don’t expect that to change. One of their main goals is still to buy low and sell high. But investors are also increasingly interested in higher-priced properties, partly because there’s a lack of low-priced inventory and partly because they’re betting on rising demand for high-end rentals.”

This article also mentions iBuyers that uses technology to buy and resell homes quickly. When selling a home to an iBuyer, the seller gets a cash offer for the home “as is” and avoids the uncertainty of knowing when and if their home will sell and if repairs are needed. While iBuyers have been around since about 2015, in 2021 their purchase activity doubled compared to 2019 levels and currently account for about 1% of total home purchases.

In my neck of the woods as a LA County resident, here’s the latest reaction by the largest local government - City of LA:

11/10/2021 LA may try to stop tech and private equity firms from buying homes as investments
https://www.dailynews.com/2021/11/10/la-may-try-to-stop-tech…

11/15/2021 LA Wants to Ban iBuyers, Private Equity Firms From Profiting off Housing
https://www.vice.com/en/article/88gazp/la-wants-to-ban-ibuye…

Amid a rapid arms race among high-tech corporations and private equity firms to buy up property and profit off a red-hot housing market, the Los Angeles City Council has voted to explore ways to ban such companies from purchasing single-family homes.

The council agreed on Friday to instruct the city legislative analyst and city attorney to produce recommendations on strategies through which technology companies and private equity firms can be stopped from “engaging in speculative practices that involve purchasing affordable, predominantly single-family housing” in the city of Los Angeles. The motion states: “The housing crisis has been further exacerbated by high tech companies such as Zillow, Opendoor, Rockethomes, and Redfin as well as private equity firms. This trend systematically increases the pricing of single-family homes in a real estate market that is already experiencing skyrocketing housing prices.”

Have to wait and see how far this goes.

Regards,
Ray

[WendyBG]

Thanks for your excellent on-topic post.

Beware of copy/ pasting a large excerpt. The TMF staff may FA it for copyright infringement. They’ve done it to me.

Better to post a few snips and explain the rest in your own words…including your personal opinion which is probably that this trend is TERRIBLE for young, first-time homebuyers and renters.

Wendy

[warrl]

Better to post a few snips and explain the rest in your own words…including your personal opinion which is probably that this trend is TERRIBLE for young, first-time homebuyers and renters.

And a link to the source article.

TMF doesn’t allow anything at all fancy with links. Just copy the URL from your browser’s address bar and paste it into the message. (That actually works pretty much everywhere, including the forums that allow fancy links.)

Warning: if you do the usual highlight-and-copy of a link from inside another TMF post, there’s a good chance your repost of it won’t work - because TMF truncates the display of long links, and that truncated display is what you’ll copy. Instead, right-click on the “original” link and select “Copy Link”, then paste that into your message.

[Leap1]

There is private equity and there is private equity. There is buying at the top and selling at the bottom.

[jerryab2]

Local govts love it because real estate taxes can be raised on property used for commercial purposes (vs an owner-occupied residence).

[rainphakir]

I drove east from Austin to near Crockett TX, last weekend.
Bluebonnet, paintbrushes, and other wildflowers were glorious!

In two small rural towns I saw hand printed signs on a major street corner: “We buy Trailor houses”.
The “We” made me think it is a “company” which led me to imagine “investors”. Buying TRAILOR houses.

In those small town, rural environs, trailor houses might be lucrative rentals.

ralph

[DrBob2]

“We buy Trailor houses”. The “We” made me think it is a “company” which led me to imagine “investors”. Buying TRAILOR houses.

Warren Buffett appreciated the market in trailer homes almost 20 years ago. Berkshire Hathaway acquired Clayton Homes back in 2003.
https://mergr.com/berkshire-hathaway-acquires-clayton-homes

DB2

[inparadise]

Local govts love it because real estate taxes can be raised on property used for commercial purposes (vs an owner-occupied residence).

I realize that local gov’t are, well, local, and not all the same, but for the most part anything that causes unrest among the population who votes for you does not equal something gov’t loves. At least in our area and the two where our kids live, residential property used as a rental is still zoned residential, and there is so far no corresponding increase in taxes for non-owner occupied properties, though our taxes have been skyrocketing due to increased valuation of the homes from high priced sales of comps.

Our areas have a HUGE problem with homes being bought up to be made into rentals and I have done several posts on the problem on this board. Increasing the millage on non-owner occupied properties is one of the solutions I have posed. Until there is greater barrier to profit on these homes, corporations will do what they do in pursuit of great amounts of profit. Requiring a business permit for more than X number of rentals, (4 seems to be the number most used in requiring increased administration and adherence to more stringent landlord laws.) These changes could apply to houses, be they SFH or multi-family, and not to apartment buildings in an effort to prevent the unintended consequence of decreased housing, be it rental or owner occupied.

Another solution that has sprung up that does not wait for gov’t action is a neighborhood association that votes on a deed restriction to insure that any house has to be owner occupied for at least 12 or even 18 months before becoming a rental. Neighborhoods have gotten tired of the transition to rentals and loss of community that can bring.

FWIW,

IP

[HohumYNWA]

Course there is also the Unicorn (David Einhorn) and his real estate pursuits.

Saw a story on Einhorn’s significant investment in Green Brick Partners (GRBK) - homebuilder and land developer in Texas, Georgia, Florida & Colorado

https://greenbrickpartners.com/about/

Einhorn’s investment vehicle, Greenlight Capital, owns about 1/3 of GRBK

[Leap1]

Course there is also the Unicorn (David Einhorn) and his real estate pursuits.

A friend of mine near NYC is a loan officer in a private bank. A few years ago a hedge fund guy walks into his bank to work with him on buying distressed houses in a ghetto. The banker has heard of such things before but does not know how it works. What happens is illegal but not on the bankers end. The banker does not know up front and the hedge fund guy will never admit it.

The bank loans the hedge fund guy separate from his fund tens of millions of dollars. He buys up something on the order of 100 homes. This is covering several city blocks. The homes are renovated with the funds lent the funds guy.

You’d think neighborhood etc worthless still.

Then three corporate entities with no real history appear and buy three of the properties in one area of the city. In this way the three sales change the valuations in that corner of the city.

There is a method to the madness. No matter how fraudulent it is.

Do not take “Unicorns” on faith.

[jerryab2]

residential property used as a rental is still zoned residential, and there is so far no corresponding increase in taxes for non-owner occupied properties,

That is how the local govt can generate more revenue without hurting home owners who live in their home.

The local govt can have multiple valuation methods to value homes. One method for homes whose owners live in their home. A different, higher-valuation method for homes owned by investors. Why? Home owners (occupied by home owners) are not allowed to deduct a variety of home expenses from income taxes while home owners (renting out homes as a business) are allowed to deduct those same expenses as a cost of doing business (thus paying lower income taxes every year). Increasing the local tax base would hurt people who want to rent those rental houses–which encourages the movement AWAY from rentals (because it costs more to rent than to own) and towards resident-ownership of the house.

[Watty]

I did not really dig into it but not long ago I looked at a large publicly held REIT that owns and rents the house behind me that I have had some issues with. One thing I noticed was that they were selling relatively low interest corporate bonds with varying rates in the ballpark of 3%(?)or less that were about 5 to 7 years for the ones I happened to see the press releases for.

It is easy to see how they could make money selling those bonds to buy houses to rent out, at least in my area.

A big potential problem is that in 5 to 7 years when those bond mature then the interest rates they would need to pay to sell more bonds to in effect refinance their debt could make the rental properties unprofitable. At that point there could be a problem with the investors selling too many houses instead of buying them.