Conglomerate tried to buy my rental house

[GoCubsGo]

I just got done purchasing and fully rehabbing a house this summer (in and out in 3 months after a lot of late nights).  I bought it with the intention of keeping as a longer term rental as rental rates have skyrocketed the last couple years (and I got a 4.125% 30yr fixed rate).  The selling market has also been pretty hot where I live so I decided to put it on the market for sale while also listing for rent.  Two days after listing it a company that has bought over 200 houses in my area this year made a cash offer.  Their goal was to rent it out.  Three days later, another agent representing the same company/hedge fund  was going to offer a higher price (the agents individually source the deals and don't coordinate apparently) .  Pretty crazy.  The offer wasn't bad but it confirmed my leanings to keep it as a rental.  I found a tenant with 700+ credit/six-figure income to rent it for 2 1/2 years (which also helped me get the house into the spring cycle of renting which I much prefer), so I'm glad I didn't pull the trigger.

I've heard of this in other markets but it was pretty crazy to see how aggressively they are going after well done properties in solid neighborhoods.  As a side not, as a Realtor, I was able to look up the other deals they bought in my area and they seem to be majorly overpricing their rentals which has led to quite a few of them sitting unoccupied for multiple months.  Should be interesting to see how these companies do going forward.

[Johnny Aloha]

Congrats! 

[Peony]

According to a blog I follow on Brooklyn, NY, real estate, investment groups are buying large numbers of multifamily houses (which the typical brownstone house is) in gentrifying neighborhoods there. The funds are cash buyers with deep pockets and it's really skewing the market (the prices are so high that rents cannot generate a return that makes sense; this investment is all about the appreciation.) and making it difficult for real people to buy houses -- as if that weren't already hard enough in NYC. And when the funds stop buying, or decide it's time to take their profits ... It kind of seems like the aim actually is to *create* a bubble with the intention of getting out before it bursts.

[GoCubsGo]

Thanks Johnny,

Peony, this company is in the second round of purchases too with $35 million to spend in this round.  It's an interesting thought that they are somewhat artificially causing a price spike, but I'd be curious from a macro level, how much of this type of activity it would take to cause a "bubble" in a larger market.

Foreclosures in my area are already being priced very tightly (within 5-10% of market value) and I work with multiple investors (mostly short term flips) who are really pushing the envelope on the properties they want me to show them as the "home run" deals are long gone.  I tell them I'm personally going toward a longer term approach as the market has a lot of investor types  and the pricing is overheating a bit and they should proceed with caution.  They are willing to risk it.  The last time I saw this was 2007 which makes me wonder a bit if we are already seeing a bit foreshadowing.  I hope not, but we will see.

[Deano]

Thanks Johnny,

Peony, this company is in the second round of purchases too with $35 million to spend in this round. It's an interesting thought that they are somewhat artificially causing a price spike, but I'd be curious from a macro level, how much of this type of activity it would take to cause a "bubble" in a larger market.

Foreclosures in my area are already being priced very tightly (within 5-10% of market value) and I work with multiple investors (mostly short term flips) who are really pushing the envelope on the properties they want me to show them as the "home run" deals are long gone.  I tell them I'm personally going toward a longer term approach as the market has a lot of investor types  and the pricing is overheating a bit and they should proceed with caution.  They are willing to risk it.  The last time I saw this was 2007 which makes me wonder a bit if we are already seeing a bit foreshadowing.  I hope not, but we will see.

My understanding (admittedly limited in this area) is that real estate is "local" enough that a bubble can happen in one city but not the next. I know of a town near me that is clearly in a bubble when compared to the towns around it. Whether this bursts on it's own or as part of a larger RE plunge remains to be seen. Anyone else have a take on this? I certainly buy the idea that these "investors" know what they're doing in this regard....oh, just thought of an example. Toronto condo market...already we see it starting to crumble, while at the same time the Toronto SFH market seems to be on the way up.

[plantingourpennies]

My understanding (admittedly limited in this area) is that real estate is "local" enough that a bubble can happen in one city but not the next. I know of a town near me that is clearly in a bubble when compared to the towns around it. Whether this bursts on it's own or as part of a larger RE plunge remains to be seen. Anyone else have a take on this? I certainly buy the idea that these "investors" know what they're doing in this regard....oh, just thought of an example. Toronto condo market...already we see it starting to crumble, while at the same time the Toronto SFH market seems to be on the way up.

Sure, it can happen that certain areas get hyped and over-purchased, this is basically what Greenspan said in his infamous "froth-not-bubble" remarks in the mid 2ks.

But if huge corporations are routinely over-pricing rentals while using cheap leverage and having the units sit vacant...I would lean towards bubble. The cheap rates are particularly important here...they using cheap leverage and are hoping for appreciation in an environment where the rates are almost certain to increase, thereby depressing the future appreciation that they are hoping for!

If you are a small investor with a bit of cash and some hand tools,  this is almost too good to be true =)

Best,
Mr. PoP

Best,
Mr. PoP

[davo]

I have seen this from two sides because of my location and my profession.

#1: I live in a college town, and big companies are building large fancy student housing near campus very quickly over the past two years. Landlords and others have said they have overbuilt student rental units in here. My boss is a landlord as well and tells me this year was the most difficult in his history to get renters.

#2: I work for an institutional investor. We have been getting many cold calls from startup real estate investment funds investing in single family housing rentals. They are buying homes in depressed markets, renting them, and waiting for equity appreciation. This has been over the past two years.

My opinion: Investors with cash are moving to real estate for a few reasons:
-low expected equity returns, for seemingly high risk (struggling economy)
-low yields in safe investments (bonds), and expectation for rising interest rates
-depressed real estate prices, and increase in rental demand

On it's own real estate would not be as attractive to investors, but compared to other investment options, it is a better choice.