Much has been written here about the growing presence of real estate Hedge Funds. We are all interested, curious, confused, and cautious about who they are, what they plan to do in our markets, and what this will mean to our businesses now and in the future.
Here’s Our Story
Our area has finally hit the Hedge Fund radar. We have avoided all sorts of attention in the past — we never had a real estate bubble so we never had the bust; we never had major bank packages available because our state didn’t suffer that many foreclosures. We read and study about these activities in other areas of the country, and have been reading about Hedge Fund activity creeping through the states. We wondered if we’d escape yet another real estate phenomena.
Apparently not. Recently, a Hedge Fund came to town and landed in our backyard. They bought 131 properties here on a single day last month. That got them noticed by both investors and real estate agents alike. This month, they purchased several of our properties and we are THRILLED to sell to them. Turns out, they are paying 92-96% of MARKET VALUE. Unbelievable!
What we’ve found locally is that they will pay 92-96% and are willing to put in another $10,000 in repair costs. Our local median price point is $147,000 which is where they seem to be buying.
To date, they haven’t hurt our buying power at all. We currently buy totally distressed to rehab and sell. They are buying fixed up properties and paying retail. They may well be the answer to our prayers.
Are Hedge Funds Destined for Failure?
Like so many of the lender activities over the past 6-8 years, we don’t understand these Hedge Fund strategies. I doubt that any of us here on BiggerPockets pays 92-96% for our properties (not for long, anyway). And then add another $10,000 in renovations? Wow, the gurus’ heads must be spinning.
The latest hedge fund phenomena we’ve been watching is their property management strategy. Since their plan, apparently, is long term holds with tenants, they need to read a book on landlording. We personally know a local woman they have hired to handle some of their property management and she’s never done it before. Wow. They’ve never contacted us and we’re a fairly large local property management company. You’d think they’d at least want some information from us. Nope. Not so far, anyway.
As far as we can tell, they’re buying wrong by majorly overspending. The only “logical” explanation is that they’re counting on significant short term appreciation. I certainly hope they’re right as we’ll be retiring much sooner if they are. Looking at historical housing numbers, however, I fear this is their final and potentially fatal mistake.
Future significant appreciation or no, our strategy is to win. If house values skyrocket, great for us and we’re Happy, Happy, Happy. If appreciation is slight and/or slow, we plan to buy back these Hedge Fund properties in the very near future at significant discount.
These people, who appear to have very little real estate experience or knowledge, really need to start reading BiggerPockets.
HOORAY FOR HEDGE FUNDS!!!Hooray for the Hedge Funds!? Our Experience Dealing with the Hedge Funds by Karen Rittenhouse