Buying An Entire Subdivision of 124 Homes

Buying & Selling Real Estate
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Buying An Entire Subdivision of 124 Homes

Tucker Cummings
Investor · Raleigh, NC · Member since 2019 · 433 posts · 743 votes

This has me conflicted.

https://www.wsj.com/articles/i...

The snippet I'm talking about is how Fundrise bought an entire subdivision of 124 new builds 20% over asking to then use as rentals. This isn't the first article I've seen like this. Other hedge funds like Blackrock, along with Offerpad and Zillow are buying up houses left and right. 

First off, let me say that I'm a huge fan of capitalism. I love real estate and owning rental property (up to 8 in two years!). I think we're all in control of our financial lives and we are all personally responsible for ourselves. But isn't there a point where things like this squeezing out the middle class? How does a young couple, even if they have great jobs, compete with hedge funds buying houses like this? Homeownership is one of the biggest wealth builders and indicators of future wealth. 

I'm conflicted because I'm using the path of buying, flipping, renting, selling, assigning homes to build wealth. But this just seems excessive. Seems like it's more damaging to the overall market than helping it. Which then brings in the matter of some kind of subjective measure of "how much is too much?" 

Feel like I'm rambling, not making sense, but thought this would be a good discussion on BP. 

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Caroline Gerardo
Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
5y

Larry Fink at Blackrock is smarter than any average bear. The models for their funds and analytical tools beat a pile of investors every day. This is America.  Zillow on the opposite side is suffering, Rich Barton cornered real estate marketing but the company is flapping around and made high priced purchases in concentrated markets, not sure they can get the stock price back up. Offerpad, well let's see how they do a month or so after the IPO. 

We need new construction in a massive wave of small affordable homes. The big builders (I worked for one in the past) are buying land like it's discount candy. What they have in the works to complete by 2023 does not even meet twenty percent of demand. 

The publicly traded big guns don't harm the luxury markets, they are grabbing what you consider the house that the middle class would purchase. 

Many inner cities were gentrified before Covid. Now upper middle class and richer buyers are moving to the country if they have a cell tower. This also is pushing prices in rural areas that had not seen appreciation in the past 30 years. 

With prices like we are in the Gold Rush, individuals need to uncover the deals that aren't cookie cutter easy, in up and coming markets, and or are more work. 

The one thing I am certain: CHANGE. It's coming. Unfortunately I don't have Blackrock's Aladdin or my own crystal ball to tell you where that vein of gold is to mine. 

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  • Taylor L.
    Rental Property Investor · RVA · Member since 2016 · 5k+ posts · 4k+ votes
    5y

    Just because they purchased those houses doesn't mean they'll succeed. What are the odds that their financial models are correct? At current market prices I don't know how it would be possible to buy anything at 20% over market and produce any kind of return. I promise you I am not telling my investors that we're buying any asset at 20% over fair market value. I don't care what it is!

    Hedge funds have lost money and gone bankrupt in the past, and that could happen once again. Hopefully if and when there is a next time, they do not receive multi trillion dollar bailouts.

    As of 2020, the IMF places the US roughly in the middle of the industrialized world on many metrics of housing affordability. For example, our house price-to-income ratio is lower than France, Greece, Denmark, Sweden, Germany, Spain, and many more. Housing price to rent ratio reveals a similar trend. Indicating that US real estate is more affordable than those countries. 

    It seems likely that this has shifted to some extent within the last year, but I doubt very highly there has been anything like a paradigm shift.

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  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    5y

    Larry Fink at Blackrock is smarter than any average bear. The models for their funds and analytical tools beat a pile of investors every day. This is America.  Zillow on the opposite side is suffering, Rich Barton cornered real estate marketing but the company is flapping around and made high priced purchases in concentrated markets, not sure they can get the stock price back up. Offerpad, well let's see how they do a month or so after the IPO. 

    We need new construction in a massive wave of small affordable homes. The big builders (I worked for one in the past) are buying land like it's discount candy. What they have in the works to complete by 2023 does not even meet twenty percent of demand. 

    The publicly traded big guns don't harm the luxury markets, they are grabbing what you consider the house that the middle class would purchase. 

    Many inner cities were gentrified before Covid. Now upper middle class and richer buyers are moving to the country if they have a cell tower. This also is pushing prices in rural areas that had not seen appreciation in the past 30 years. 

    With prices like we are in the Gold Rush, individuals need to uncover the deals that aren't cookie cutter easy, in up and coming markets, and or are more work. 

    The one thing I am certain: CHANGE. It's coming. Unfortunately I don't have Blackrock's Aladdin or my own crystal ball to tell you where that vein of gold is to mine. 

    2Reply
  • Ryan Schechtman
    Ann Arbor, MI · Member since 2014 · 3 posts · 2 votes
    4y

    Hedge funds quietly entering this segment of the market is the most under-appreciated trend in real estate.  The average American doesn’t (yet) know this is happening.  Many investors are still unaware of this development (despite this article being 9 months old).  Even those that are aware mostly don’t (yet) understand how much of a game changer this is. 

    Caroline, I wholeheartedly agree with your points.  “We need new construction in a massive wave of small affordable homes.”  So true.

    Then again, what’s to stop hedge funds from buying these new builds too?  They have great relationships with the big banks, (plus billions in collateral, obviously) so they get great rates.  They can afford to come in at 20% over and still cash flow, in part due to those exclusive rates.  

    It’s a good time to be a big builder (except for the cost of materials).  It’s a good time to already own property.  It’s a good time to be a giant hedge fund.

    Here’s the tl;dr version from a friendly bot:

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  • Lori Williams
    Developer · Youngstown, OH · Member since 2019 · 129 posts · 121 votes
    4y

    I don't know how all this over buying will pan out, but I would wager there will eventually be quite a few houses on the market selling for less than they were purchased for in 2021 and 2022. Zillow tried to fix the marketplace and it bit them (good!). 

    Right now I'm glad the hedge funds and these other corporate types haven't put my area on their radar. 

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