Rental Property Investor · Jacksonville, FL · Member since 2013 · 43 posts · 20 votes
I live and work in Jacksonville, FL and have noticed over the last several months a huge influx of out of area investors. One buyer has bought over 100 homes here recently and rented them out. I researched some of the buyers and found that they are private equity and hedge funds snapping up so much. Are they in your market yet?
We are just creating a nation of renters it seems like. We have buyers lined up that can not find anything who go into renting again... they are creating their own renters market...
Yep, ya gotta hand it to them Banksters. They're a crafty bunch.
First they entice SFH bidding wars with easy credit that they can create out of thin air.
Then they blow up the economy with a financial crisis causing people to lose their SFH.
Then they borrow money from the Fed at 0% and buy up all the cheap SFH.
Now they rent them back out to the people they swindled in the first place.
Wow that is a lot. I haven't seen that here where I live, but I have heard that hedge fund companies are doing a lot of investing in different industries. I hope that doesn't hurt your opportunity to grow your business.
Yeah - they are out here in Cali as well. They are pretty much paying full retail and even over-biding in some instances. The good news is they are sticking to only a certain type of product.
They are typically looking for new homes built and stuff that is more turn key.
My advice - buy where they are not - older homes, smaller Sq ft, stuff that needs a little work.
In Phoenix the capital funds are extremely active. In properties under $200K built after 1980 they are bidding up everything at Trustee Sale auction to ARV or higher. They are also very active in the short sale and standard MLS sales. At a recent closing, a representative of one such company told me that that she was doing 50 closings a week. All properties are being held for rentals and in certain targeted SFR neighborhoods 30% + the entire housing stock is investor owned -up from 6% in 2005
Yep the hedge funds are snapping up homes here in orlando also super major activity. My partner talked to one of the reps from this fund (i cant remember the funds name) and he said last month alone the fund spent 10 million dollars on properties and they have another 80 million to spend. Time to put your hard hat on.
We are seeing out-of-state investors buying up large quantities of lower-end property. In fact, our business model has effectively shifted over the past few months from rehabbing and selling retail to FHA buyers to wholesaling (or doing minor rehab and reselling) to these large investment firms.
We're finding that our margins are greater doing it this way, as many of these firms are paying near retail for properties due to lack of inventory.
Here in Houston they are buying them up in pools. One real estate agent told me she is only working with them as she is getting full compensation from them.
They're headed for trouble and that could get ugly. It didn't work well securitizing high risk mortgages and it won't work paying retail and securitizing rent income when they figure out their real operating expenses. Look out when they all try to avoid being the last to abandon ship.
Blackstone has been a big player in the Sacramento market since August 2012. They've purchased about 500 properties on MLS - mostly under $200K (80% under $200K). They seem to be slowing down a bit now, which is probably a good thing. On top of hedge funds and private equity funds, there are an extraordinary amount of investors making purchases here in Sac. I think news of the bottom of the market early last year was one of the factors really motivating investors to enter the market.
They are buying a ton of foreclosures at auction in St Pete, FL. They are bidding up the prices to beyond retail. I gave up on bidding and went back to buying REO's.
Anybody have any ideas on how to figure out who they are and get them on your buyers list?
Shawn: this question was addressed in a thread several weeks ago. My opinion is that they don't have a buyer's list. They buy listed properties and/or have teams buying at auction sales. You may be in an area where they are not buying at all. From my observation, the funds are buying properties that are mostly turn key and/or in very stable neighborhoods. A lot of stuff built after 2000. Since a lot of those properties were never going to be good deals for landlords anyway, I just don't see the funds being competition for most buy and hold investors. In my farms, the funds are competition for the owner occupant buyers. It's hard for sellers to turn down investor buyer cash offers.
I'm in the Vegas market and the hedge funds and private equity funds are sucking everything dry. Blackrock just announced they will be purchasing at a net 6 cap (WTF??) Colony Homes will probably soon follow, and it looks like a race to acquire.
Here in Sacramento they are definitely purchasing up quite a bit of inventory. Large hedge funds and inexperienced investors are currently my largest competition. There are investors purchasing at the top of the market and hoping for prices to keep going up. Luckily I'm still going strong, gotta keep trucking.
The big buyers in Jacksonville are keeping them and renting them out through a property management company, after fixing them up. I have not seen them re-sell a single property.
The hedge funds are trying to securitize rental income just like they did mortgages. They are happy buying at 5% cap rates all day and they do know how to calculate expenses. Right now there is no security market for rental income but if a market can be established then watch out ... yields on rentals will get very squeezed. They are betting that this market will in fact materialize and the funds that bought early enough (before this market exists) will be able to either unload at lower "risk free" caps and/or sell back into this new market where inventory is perpetually lean and prices high. Its a risky play and there will be winners and losers but I wouldn't be quick to bet against hedge funds. If a bubble does form and subsequently collapse I would bet that it will be the new investors and homeowners that get hurt and not the hedge funds. They will be long gone by then and creating new markets out the scrap heap that is left.
Here in AZ they are very active and one of the bigger ones (Colony Capital) is based in Scottsdale. The best advice is stated here, buy what they don't and enjoy the price appreciation they are creating. Primary buyers as usual will have the toughest time of it.
Raise cash now. These big boys will be moving out of these investments at some point.
Best post here.
Agreed. Institutional money is not equipped for a long term asset hold. Never has and never will. Historically, SFR has never been their business model. If banks don't like holding inventory, funds won't either.
The beauty of real estate is identifying opportunity with the changing tide. There will always be methods to create money if you're creative in every conceivable market.
There are at least two large hedge funds purchasing here in Jacksonville. They have the same criteria as most other places 1995+, $100,000-$200,000, turn key properties. I just won't even look at homes in that market. Same as elsewhere they are paying full retail at the foreclosure auction. We look for older homes, more expensive homes, and homes in need of rehab to avoid them. I like J Scott idea of wholesaling to them, what a great adjustment.
I have also noticed more out-of-state investors coming here because their markets are too tight. So far it has been a good thing as I am working with some of them.
I'll be interested to see how it turns out for the hedge funds. It sounds like it's going to be a few years before they'll be able to securitize them. Not what they were hoping for. I guess the rating agencies are still stinging from the MBS's. I'll give them credit for creativity, when they see potential they move. Seems like a one time deal for them though with the low prices and record low rates right now. It hasn't exactly been a normal market for the past few years.
Anybody have any ideas on how to figure out who they are and get them on your buyers list?
They're buying right off the MLS, so if you're an agent listing a property that meets their criteria, they'll be calling you.
We've met a bunch of these agents over the past few months and for many of our properties now, we're not listing on the MLS. We just send an email to the agents and then let their cash buyers fight over the deals.
J Scott very interesting strategy ... I wonder how difficult it has been for you to source these properties. Are you finding that the hedge funds will not buy rehab properties so you just target those. In my market they buy fixers also if they meet the other criteria. Thus sourcing the same property they are after is difficult as they are buying in all venues. How are your margins on these deals as compared to your flips circa 2010-11? Are you still actively buying FHA flips?
Josh Rowley, all the comments above are good. I thought i might throw in my 2 cents as well.
Several years ago my team used to sell properties to several funds in non competing areas here in the SF Bay Area. (until they figured they would just hire there own people) Here is what i see happening...
1) Typical funds need to put a minimum of 10million to work, otherwise it is just too small of a business for them to be in. There deal flow is currently unsustainable on local levels and on many different fronts. (tapes, trustee auctions, mls,etc) In addition they have a burn rate on the money that is borrowed. If there is not enough deals for the money they have to give the money back.
Not enough deals = not enough interest from funds.
2)I'm not hearing new money being raised for this type of investing.
I try to keep my ears wide open on what funds and family home offices are investing in. Here is what i am hearing about sfr flipping/buy and hold funds.. "the sexiness of this investment is wearing off." "too many moving parts" " No new money is flowing in at this time". "When x fund realizes that he is just a property manager, he will know why his return is what it is."
This is a good sign. The beginning of the end of these type of funds.
3) Investing is on so many levels a micro managed business that is hard for large funds to see. (too many moving parts) They are after returns, although it looks good on paper, they will soon find out what the management side really looks like. Its funny how quick returns diminish when your disposition is 10% in realtor fees, closing costs, and fix ups. They can not ascertain this on paper, but they realistically will very soon.
These funds are a one trick pony, (buy and hold at the median house prices typical 3/2s) The typical exit strategy is 5 to 7 years. What happens when these funds are going to exit in several years?.. Stay tuned we are in for a wild ride when Wall Street is ready to let this pony out to pasture.
PS
I will also second what others have stated above. "go where they are not". No fund is doing SUB2, No fund knows your stomping ground like you do, has the relationships like you do or can. In addition, if you can, play at the levels they cant.
J Scott very interesting strategy ... I wonder how difficult it has been for you to source these properties.
We've stopped buying off the MLS, as there is just too much competition (mostly from these investors). Most of our deals are coming from direct marketing these days.
How are your margins on these deals as compared to your flips circa 2010-11? Are you still actively buying FHA flips?
We're seeing the same average profit on these wholesale deals as we were seeing on the rehabs, which translates to better margins. We're still buying the same properties, but are just making them rent-ready instead of doing full remodels. But, our buying criteria is the same for the most part.