Opinion on Institutional Investors

Just before Christmas, RealtyTrac issued a white paper on the buy-to-rent business that features a discussion of how the business got to where it is today, but delivers with a narrow, perhaps biased view of where it’s going tomorrow.

The report’s central points are not news to most readers of this blog: rising prices and shrinking inventories have changed the game, huge hedge funds have changed the rules in the markets where they have been most active and in the future investors will have to look beyond the well-worn markets and manage their properties well to succeed. If you’re looking for a source of good data and graphs on these topics for your next presentation to investors or business plan, download the White Paper on Buy-to-Rent Market.

Here is a summary of the report’s more interesting points:

  • Institutional investors as a whole (even when defined as investors purchasing at least 10 single family homes within a calendar year) are still very small fries in the REO-to-Rental business. They purchased a combined total of 366,206 single family homes from January 2011 through November 2013, but that’s only 7.7 percent of all residential property sales in November and 6.3 percent a year ago., according to a separate RealtyTrac report. (By the way, don’t make the mistake of equating “institutional investor” with hedge funds. This description also covers REITs, turn-key investors like Norada and Memphis Invest as well as larger partnerships and integrated investment companies.)
  • Poorer neighborhoods are being passed over in favor or richer ones; prime neighborhoods make better targets for hedge funds than normal “core” areas. The average price per square foot of premium homes, defined as those with a purchase price of $300,000 or more is increasing at a …read more