What cities are the Hedge funds buying in ?

Buying & Selling Real Estate
11yFollow

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...

Podcast Guest on Show #222
JLH Capital Partners51 Review
WebsiteView Page
4Reply
645 views

Most Popular Reply

Chris Martin
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
11y
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

6Reply
See this reply in the discussion

126 Replies

Jump to latestLatest
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Chris Clothier 

      Thanks for chiming in on this one... Now I have no first hand knowledge of what HF are doing in Memphis... I know the homes they bought from me in Atlanta were all 1990 and newer and we rehabbed to my standard which at the time I was keeping these so I put the money into the critical systems.  In addition in the other markets I played in that were older and had tree line streets.. I routinely replaced the sewer line whether it needed it or not.. Knowing that it one day the old tile lines would get plugged and an emergency sewer replacement cost double or triple if you do it in your rehab... And the number one maintenance issue is usually sewer stoppage at least in these markets. 

     I think the early on HF probably did not know what they know now... I know the stuff my guys buy for them now need pretty good rehab .. And I have other clients of mine that I fund that do full gut jobs.. they take each house to studs and replace everything electrical plumbing, water heaters new HVac windows. insulation sheet rock new kitchens with slab granite and under mount sinks stainless appliances.. full tile showers and bathrooms.. really to a standard we would do on 300k new builds like I do here in Oregon.. But again these rehabs cost more than most TK houses   LOL... But they still make the numbers on the return side and I think long run will do well because of lack of cap ex spending over the next 10 to 15 years.

    Whether hedge funds will be failed landlords?  Yes if they bought did not know what they were doing and sell for a loss then yes I would categorize them as failed... You can fail as a landlord in many ways... rehab and maintenance are just one.. Picking the wrong PM is another buying on the wrong street another... Many ways to fail at land lording.

    But at the end of the day all RE is a Risk to some extent.. its how you manage risk is the key.  for instance you can have a perfectly good home do everything right but if its in Texas with their bad soils and the clay moves on you and your house cracks like humpty dumpty house well not much you can do about that you shell out the money to fix it.. you just lost 2 to 5 years of any cash flow you hoped to make... Just nature of the beast.  Same with if you have a tenant go bonkers on you..

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    1Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    11y

    @Chris Clothier  The fund we supplied spent big money on rehabs after paying top money for the homes. Most of the crappy rehabs I have seen are from flippers but I only really dealt with one fund.  No one I've seen does a nicer job than you guys it must be said!

    1Reply
  • Dawn BrenengenBusiness Member
    Moderator
    Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    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. 

    Podcast Guest on Show #101
    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Dawn Brenengen 

      they were the only HF to come into our market here in PDX and bought 300 plus homes they were 175 to 300k per home in our market at the .05 to .07% rule.  they were betting on apprecaiton for sure. And of course we have one of the most stable tenant bases in the US.. no drama no hud etc etc.. especially at those price points...

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Dawn BrenengenBusiness Member
    Moderator
    Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    @Jay Hinrichs  they were in the $175-$250k or so price range here.  Probably the same .7% rental rate, and they were asking top of the market prices for rent and didn't seem to mind hanging on to vacant units. That's fine by me as it helps me get my units rented when people are comparing to those. It doesn't hurt that they also have terrible reviews on the Interwebs. These are all in decent A/B areas. 

    Podcast Guest on Show #101
    0Reply
  • Elliot Smith
    Investor · Vancouver, WA · Member since 2014 · 270 posts · 111 votes
    11y
     @Jay Hinrichs:

    Thanks for this thread I am learning a ton. And don't worry my wife and I are spending our Valentines day working on property number 4.

    Elliot 

    0Reply
  • Patrick Capriola
    Rental Property Investor · Jacksonville, FL · Member since 2012 · 31 posts · 5 votes
    11y
    They are buying in Jax, FL. One of the big ones bought down the block from one of my units.
    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    11y
    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

    6Reply
  • Leigh Ann Smith
    Manvel, TX · Member since 2014 · 309 posts · 127 votes
    11y

    @Rachel Leonard , we are investors in the Houston area.  Falling oil prices are starting to cause layoffs.  Do you think the hedge funds will back away because of something like that, even if the real estate market is still strong for the time being?  (I hope so.)

    0Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    11y

    This is an interesting thread to follow.  Although I don't foresee my area being a target for hedge funds, it is a topic that can definitely impact local markets from what I can tell.

    0Reply
  • Dawn BrenengenBusiness Member
    Moderator
    Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    @Chris Martin thanks for the info. No wonder I can't seem to find any investment properties s for my buyers!

    Podcast Guest on Show #101
    1Reply
  • Engelo RumoraBusiness Member
    Investor · Toledo, OH · Member since 2013 · 4k+ posts · 2k+ votes
    11y
    Originally posted by @Jay Hinrichs:

    @Veronica Paez 

      That is a good point.. when the hedge funds first came in they were shot gunning it from what I could see.. then they started to refine and define what they would buy.. IE had to be 1980 or newer.. had to be 3 and 2... had to be certain zip codes..

    Some wanted to buy them at auction and take them through the process. Others ( like the group we sold too) Wanted them already rehabbed and tenanted..

    One group I have personal knowledge of did want them rehabbed and tenanted. but this year made a 180 on that and they want them rehabbed but they want to place the tenant.

    As some have gotten bigger holdings they have switched from for hire PM to bringing PM in house.

    So just like us investors they were figuring it out over time.

    To my Knowledge markets they did not buy in were

    Detroit  or anything MI  and anything Ohio...

    If they did not buy in Chicago I think they really missed the boat I for one like that market

    Yep Jay,

    Nothing in Ohio yet.

    I hope it stays that way for at least another 3-5 years :)

    Thanks

    Podcast Guest on Show #89
    Oz Realty4.5369 Reviews
    WebsiteView Page
    0Reply
  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    11y
    Originally posted by @Dean Letfus:

    @Chris Clothier  The fund we supplied spent big money on rehabs after paying top money for the homes. Most of the crappy rehabs I have seen are from flippers but I only really dealt with one fund.  No one I've seen does a nicer job than you guys it must be said!

    Yes they were and are a good company at a minimum trying to do it right and it is tough to differentiate who is a fund and who isn't so I tried to point out HF and HF style buyers.  To compare with Dallas and Houston, the level of the work is just different.  However, we see some of the same decisions in Dallas to ignore what we consider basic like foundation work.  I think the bad rehabs are pretty endemic in Memphis and certainly not limited to just the big buyers like you say.

    One more quick note on my renovations point and I know you will agree with this.  Simply spending more money on a house or more money on a renovation does not make it better.  8 years ago we would spend $10,000 on a renovation.  Today we will spend $22-25,000 but that does not mean we - or a HF company or large institutional buyer can just say it is better.  We still find contractors trying to cut corners all the time.  You have to keep a close eye on the contractors or otherwise you are just spending more money and not getting any more value.  

    I think that is an issue that nearly every Hedge Fund ran into early on and some learned - some didn't.

    Podcast Guest on Show #224
    REI Nation4.577 Reviews
    WebsiteView Page
    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Chris Clothier 

      seems with your size of company you could have a hedge fund procurement division thereby saving said hedge fund the learning curve and get a quality product.. and it would mean less marketing cost for you so you could give them a volume discount that made it a win win for all...   YOu have probably already been approached on this concept.

    My guys in other markets were flipping to the hedge funds but they got frustrated because by the time they wrote contracts and could get final answer from world headquarters they were losing deals left and right.. That created my opportunity to step in and help them with nothing more than what I call a flooring line just like a car dealer needs to keep inventory ready to sell to their customers.. this way we react to the best deals in real time same day same hour... then the hedges can take their 5 to 10 business days to make a decision and then if they pass it just becomes a buy and hold with a refi or a sale to another investor and in these markets most sales are done right off of MLS..

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Chris Clothier 

      I look at the hedge fund phenom from a RE brokers standpoint... Just like really good brokers nationwide  when they recognized that banks were going to be over their heads and short sales were going to be half or more of the sales... The really good agents hopped on planes knocked on banks doors and asset manager doors.. Sold their services to the institution and next thing you know you have a very few brokers in a market getting all the distressed bank inventory  ( we all know those brokers)... Well the opportunity is the same in reverse with the Hedge funds or other smaller investors cobbling a few million together or maybe a 5 mil PPM to buy distressed assets.. the local guy has an opp to find those players and get in front of them.. It could mean flying to their office and making a personal presentation.. and then getting in on the pipeline.  If you can't beat em join em.. or you one can just sit on the side line and whine that there are no deals because the big players are dominating the market... !

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Jesse T.
    Herndon, VA · Member since 2014 · 1k+ posts · 324 votes
    11y

    I think Hedge Funds have a number of exit strategies that wouldn't be available to the typical investor.  They could sell the portfolio to another hedge fund or institution.  Another option would be to spin off the properties and debt as a separate business.  If they wanted to be really clever they could package them as derivatives and allow a way for others to go long and short.

    If things get bad they might even just turn the properties over to their creditors rather than having to liquidate in the retail/small investor market.

    0Reply
  • Chris Martin
    Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
    11y

    @Jesse T.  these hedge funds (the ones I know about) operate as a REIT, so there are restrictions on how they dispose of assets. I don't know the REIT rules, but I often see 100% tax thrown around for certain asset dispositions. Example wording I saw in one SEC filing:

    "...assuming that we otherwise maintained our REIT qualification, we would be subject to tax on the built-in gain on each asset of Beazer Rental Homes existing at the time of the Beazer Merger if we were to dispose of the Beazer Rental Homes asset within ten years following the Beazer Merger..." 

    Regarding "If things get bad they might even just turn the properties over to their creditors..." except their acquisitions are all cash (no debt). AH4R only recently issued an ABS, so they are starting to take on debt. It's a low % of asset value... Most of their transactions are stock related (new issue or options) rather than debt.

    0Reply
  • Bryan R.
    Tacoma, WA · Member since 2010 · 203 posts · 93 votes
    11y

    @Jay Hinrichs 

    We had 4-5 large fund types around here buying hard and fast for awhile. Invitation, AH4R, and FREO were the biggest players. They really shifted the market for everyone else. But they've all mostly exited. The only one I think is still around is Invitation and they are buying far far less, maybe 40-50/month. Though I think because their competition has left they are getting better deals now. I have noticed a handful of properties come on the market for sale that were early fund acquisitions and clearly mistakes that they are just looking to unload.

    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Bryan R. 

     40 to 50 a month that is massive buying were they set up at the Friday Foreclosure auctions or just buying off of Mls Like 4Rents did here in the PDX market... I will check with my broker buddy who old a bunch of those .. and see if they are still just holding.. I know in the PDX market with our less than 1% vacancy rate and rents that rose 20% in 3 years they are probably pretty pleased with what they have.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Bryan R.
    Tacoma, WA · Member since 2010 · 203 posts · 93 votes
    11y

    @Jay Hinrichs 

    Well it is significantly less volume than they were doing. They buy at auction and off the MLS.

    Edit: Here's an interesting little note I just ran across:

    Invitation has appealed valuation on 560 of their homes in Pierce County. 

    0Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Bryan R. 

      that's good information.. It will be interesting to see how each of these companies do over the course of the next 5 years.. and how they did compared to region they invested in. Theres no doubt the first ones into PHX Socal and Vegas have done very well on apprceation.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Mohit Madaan
    Investor · Stockton, CA · Member since 2014 · 167 posts · 49 votes
    11y

    A good friend of my best friend started working for this hedge fund company and his job is to basically pick up any property he can get his hands on in Stockton, with value between 100k to half mil... going to see him soon and try to get more information... Would love to ask any questions if you guys have any?

    0Reply
  • Chris ClothierBusiness Member
    Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
    11y
    Originally posted by @Jay Hinrichs:

    @Chris Clothier 

      seems with your size of company you could have a hedge fund procurement division thereby saving said hedge fund the learning curve and get a quality product.. and it would mean less marketing cost for you so you could give them a volume discount that made it a win win for all...   You have probably already been approached on this concept.

     We were approached by every group buying in Memphis and now Dallas and we probably got a reputation with them as being difficult.  It never worked for the same reason that it some HF's are failing.  They do not value the work on the ground.  The take for granted the renovations and the property management.  The house is secondary to the success of a buy & hold investor.  It has to be good and the location absolutely matters.  But without good renovations and good management a great property will be turned into a nightmare.

    And I have yet to have a conversation with any Hedge Fund, family office, institutional buyer where they actually value these services for what the single investor market values them for.

    So we were never going to settle and work with a HF in Memphis or Dallas for the peanuts they offer to pay. 

    Not to mention, we are closing over 56 deals a month on average right now so we don't need the volume.  It was a strictly business decision on our part.

    Podcast Guest on Show #224
    REI Nation4.577 Reviews
    WebsiteView Page
    2Reply
  • Jay HinrichsBusiness Member
    OP
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Chris Clothier 

      I have heard that about HF  they really want to beat on PM...

    Only 56   Phew that's great !!!

    now to gently remind you of the personal transportation you may want to consider here is the link.. you can buy one brand new in the next 12 months.

    http://cirrusdesign.com/vision/

     When I was a big boy HML I had a deposit on one of these  !!!  but that was when they were scheduled to sell at under 1 mil now they are double.. but would be worth every penny in your operation !!!
    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    0Reply
  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    11y

    @Leigh Ann Smith  My guess is Houston will see an uptick in vacancy and a fade in prices.  Most of the HF guys are momentum players so my guess is they will slow or stop buying in markets affected by falling oil prices.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free