What cities are the Hedge funds buying in ?

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What cities are the Hedge funds buying in ?

Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Are Hedge funds buying in your city... should investors be following them and buying along side the Hedge funds with the hope of getting swept up in the anticipation of capital growth based on supply demand?  Or are they wrecking it for locals and other investors by creating a frenzy and escalation in wholesale prices...

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Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
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Originally posted by @Dawn Brenengen:

American Homes 4. Rent has been in the. Raleigh, NC market for a few years. I'm not sure if they are still actively buying, but they own quite a few homes now. 

In Wake county (Raleigh area), AH4R has acquired 47 properties so far this year. We are half way through the quarter and that number is consistent with their buying pattern in the past year. 2014Q4 was 122, 2014Q3 was 84. 2014Q2 was 61. 2014Q1 was 83. As for cities they are in, Raleigh is not in the top 10. From their last quarterly SEC filing, the top ten are(*):

Dallas-Fort Worth, TX
Indianapolis, IN
Greater Chicago area, IL and IN
Atlanta, GA
Cincinnati, OH
Houston, TX
Charlotte, NC
Tampa, FL
Phoenix, AZ
Jacksonville, FL

(*)page 28: http://www.sec.gov/Archives/edgar/data/1562401/000104746914009227/a2222184z10-q.htm
Related:
http://www.biggerpockets.com/forums/311/topics/86191-the-modus-operandi-of-the-mass-buyer---a-case-study
http://www.biggerpockets.com/forums/88/topics/110262-thinking-of-an-investment-in-a-hedge-fund

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  • Account Closed
    Real Estate Investor · San Antonio, TX · Member since 2014 · 785 posts · 190 votes
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    maybe so jay. anytime I hear the guy say 'I represent a hedge fund buyer....' I roll my eyes. :)

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  • Rachel Leonard
    Investor · Atlanta, GA · Member since 2013 · 112 posts · 15 votes
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    @Jay Hinrichs. I do some work for a company in Atlanta which buys and manages lots of properties for hedge funds. They've moved into other US markets in the past year (Houston, Dallas and Orlando) and are looking to expand further so they aren't relying on the local market. There aren't as many big buyers in Atlanta now for this company and they are also shifting their buying to higher end houses.

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Rachel Leonard 

      seems to be a natural progression as the institutional buyers look to move up in quality and ease of managment

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  • Loren Thomas
    Electrician · Bothell, WA · Member since 2014 · 241 posts · 96 votes
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    In Snohomish County, 30 min north of Seattle, there are neighborhoods popping up all over. In addition to that, I work for a large multifamily electrical contractor, and we have a lot of projects going right now in Bellevue and Seattle, all 200+ unit buildings with various retail space below. On my way to work the other day I counted 19 cranes within the city skyline driving southbound on I-5, mostly high rise multifamily projects. I've read Amazon.com's growth is fueling the development.

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Loren Thomas 

    Have you seen or heard of hedge funds buying SFR's in your area... Homes4rent made a run here in Pdx for a bout 6 to 12 months also over in Vancouver WA... then abruptly stopped buying... One of my good friends made a nice living brokering their deals for that period of time.

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  • Rusty Scott
    Real Estate Broker & Investor · Indianapolis, IN · Member since 2012 · 218 posts · 83 votes
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    I was under the impression, wrongly it seems, that the institutional buyers like these had stopped acquiring a couple years back. 

    I was approached here in Indy...but none of my properties met their conditions. They were looking for homes 1990 or newer. Which mainly meant the burbs of Indy. And honestly most of those never seemed great investments to me. 

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  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
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    They were in Calif and most thought they were "over paying". Turns out the hedge hogs were right. Vegas same thing. I would have to say if they are buying next door you are in luck. They really seem to know this timing part well. 

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  • Chance Williams
    Residential Real Estate Broker · Southaven, MS · Member since 2014 · 9 posts · 1 vote
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    They are in Memphis and north Mississippi. American Homes for Rent, a fund called Freo, and a few other small ones as well as a couple of major "brokerages" like Main Street Renewal. They have dwindled our market in north MS to almost nothing. My wife is an agent and can't find clients any descent houses because they have already bought them all. I am an investor and I try to send everything I have to them. They pay top dollar and they pay cash. You can't beat it. We have probably flipped 30+ houses to them this year.
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  • David Begley
    Investor · Atlanta, GA · Member since 2014 · 415 posts · 299 votes
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    @Jay Hinrichs I think you'll see a different market dynamic and strategy this time around with Hedge funds, and I predict this will primarily be a result of continuing efficiencies and creativity in the SFR rental securitization market. As home ownership declines and MBS/CMO product shrinks, I think you'll see a significant increase in the SFR rental securitization market. Yes, they (hedge funds) will, as a group, pay higher prices than us little guys will in the same market but they can do so knowing the securitization will mask the fact they are paying full or above retail. They know that in the short run price doesn't matter - especially after pooled with other rentals by their cash flow characteristics and a credit enhancement is layered on to obtain an investment grading rating.

    Buy in the locations they are buying but don't overpay - just sit back and enjoy the appreciation as the hedge funds demand for product increases. 

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @David Begley 

    @Chance Williams 

    This is what some of my guys are experiencing.. run up so if they can get in and flip to them.. because as private buyers they can move faster..

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  • Zack Presnell
    Rental Property Investor · Cleveland, GA · Member since 2014 · 20 posts · 3 votes
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    Remember this. Be greedy when the majority are fearful and be fearful when the majority are greedy. It applies to the stock market or real estate. I remember when monkeys tossed darts at stocks versus gurus picking stocks and the monkeys had a better return. Do the opposite of the majority. 

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  • Derrick Craig
    Memphis, TN · Member since 2013 · 969 posts · 524 votes
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    @Jay Hinrichs 

    @Chance Williams 

    @David Begley 

    Does anyone have a name, Phone number, or email address that you can PM me or share to send deals to the hedge funds to look over for purchase?

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Derrick Craig 

      I would think the closing attorneys in your town could give you leads of who is buying. Or if you use title companies in your market.. I know I only used attornies on the loans I did in Memphis in the day... I am sure you know many closers that is were I would start.

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
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    Derrick craig,  they are primarily buying nicer more expensive homes say cordova and bartlett, inincorporated bartlett.  I don't think your product is what they are looking for.  They are buying mostly from retail listings.  We have maybe done a handful with them and it's difficult. 

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Curt Davis 

      there are some that buy in the lower end.. but most have gravitated to the nicer inventory as they do not have nor do they want to buy properties that have the highest paper return. they want realistic returns and they want properties that they think will appreciate ...

    Hedge funds are not buying with the same mentality many in the mid west talk about IE I only want max cash flow and could care less about appreciation.. these guys from what I know WANT appreciation as well. Ergo as you stated buying nicer stuff .. one reason of course is that appreciation is an important component in overall return over the years.

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  • Curt DavisBusiness Member
    Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes
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    most of the funds here in Memphis are actually selling homes for less then what they purchased them for.  MSR is buying only nicer stock. I don't know of any others here buying low end.  BLT started out low end but quickly turned to nicer.  My gut tells me they will keep selling off soon enough. 

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
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    Yep, last estimate they picked up 2500 or so homes here.  They've slowed down some, but not stopped.

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  • Mary B.
    Real Estate Investor · Lansdowne, PA · Member since 2013 · 1k+ posts · 656 votes
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    @Jay Hinrichs undefined

    Not long ago I came across a HF from out of California that was selling off a portfolio of Philly properties that were seriously overpriced. They hadn't made any updates to them and were pricing them like they were in L.A. Many weren't in demanding areas. My guess is because they are HF they just contact the banks for any distressed inventory to buy in bulk, sit on them for a year and then blindly increase the prices thinking they'll get a hefty profit.  Many of them seem to have no idea of what they are doing. They operate in real estate the way they do with stocks and that's their downfall. My coin.

     Kudos,

    Mary 

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Curt Davis 

      that goes to my previous statement that many of these companies did not really know what they did not know when they purchased.. just like many foreigners or CA investors that think they can get rich with 30k houses in Memphis or other major metro areas.

    So I do believe there will be some liquidating of low value assets and some hedge funds that do not do well on a certain portion of their buys.

    I know when I sold a year or so ago my 50 homes in Atlanta I think these guys paid top of market .. Not sure if the prices have gone up much.. but they were solid rentals. and of course what they paid was still far below historic highs.

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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
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    I don't think any funds are still active in Memphis except very high end stuff. Most of them paid too much and are trying to get out now.  They completely ignored the fact that Memphis wasn't big enough to have thousands of new rentals coming online in a 12 month period.  We enjoyed selling them to them though :-)

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Dean Letfus 

      well you will enjoy buying them back from them  then packaging them up and selling them to the next set of buy and hold investors.  LOL

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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
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    Not me Jay. WE could never sell them. We refuse to join the "screw the investor" party. We are selling 15 to 25K below almost all our competitors.  We have to work real hard to find the houses but we still do!!

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  • Jay HinrichsBusiness Member
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    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Dean Letfus 

      I would venture to guess anyone In this business has bought a wholesale home from some out of country investor or CA.. investor who failed and walked away.. I am certain about that.  There is only so many sub prime folks that lost houses the rest of the inventory in cities like Memphis come from failed land lords and that is just a fact.. whether you sold them to the investor in the first place or one of your competition did is beside the point.

    And its why in my mind its so important for out of state investors to buy the best they can so they can mitigate the risks... what good does buying a 15 or 20 cap do you when it cant be sustained and you end up walking from it.

    and I think this is where the hedge funds have come to realize that they needed to buy nicer stock being out of area owners as they are.

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  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
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    Oh I agree, what I meant is that the funds are selling at a loss because they paid too much and over rehabbed. They are still selling now at too high a price point for us to buy and resell generally was my point.

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  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
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    Originally posted by @Jay Hinrichs:

    @Dean Letfus 

      I would venture to guess anyone In this business has bought a wholesale home from some out of country investor or CA.. investor who failed and walked away.. I am certain about that.  There is only so many sub prime folks that lost houses the rest of the inventory in cities like Memphis come from failed land lords and that is just a fact.. 

    And its why in my mind its so important for out of state investors to buy the best they can so they can mitigate the risks... what good does buying a 15 or 20 cap do you when it cant be sustained and you end up walking from it.

    and I think this is where the hedge funds have come to realize that they needed to buy nicer stock being out of area owners as they are.

     Jay - I wonder if you will consider HF and HF style buyers to be failed landlords when they sell their properties at a loss (?).  That is exactly what they will be here in Memphis.  However, I agree and disagree with one point that Dean makes in one comment.  There were a TON of companies over paying for unimproved property.  But it didn't matter where and still does not matter where they buy or bought.  The biggest mistakes have been in a lack of proper renovations. 

    I continue to be blown away here in Memphis by the LACK OF renovations done to properties.  We look at properties every week from groups that have already renovated properties.  They are advertised as completely ready to go and ready for a renter and after our teams walk these properties we have renovation budgets on some over $20,000!  Basic stuff like updated electric panels hadn't been done.  Huge trees left in the front yards right in line with septic, driveways jacked up and triple layer shingles on roofs.  And these were being offered as completely renovated.

    Same goes for the occupied properties we are being offered.  We walk them with tenants in place and they are disasters waiting to happen.  We check with code enforcement and no permits have been pulled in years.  We can't buy these properties yet because the pricing just does not work.  They have to come down so we can come in and do the work right.

    Many HF are extremely successful at this model and others have had to learn. But, In my opinion, no investor or landlord or HF buyer is going to be successful if they cut corners and do crappy renovations. Capex will eat you alive as turnover rages every year and time spent vacant increases. No matter what price an end investor pays, high or low, if the quality of the renovation is poor, that property stands a very high chance of being resold either at a loss or as a foreclosure.

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