Private equity firms are betting big on the housing market. In the past, the typical “home flipper” has usually been considered an amateur investor who taps a home equity line or savings for an investment property; today, numerous private equity firms and hedge funds are crowding into this space. They purchase single-family homes – often foreclosed on or heading that way – and either convert them into rental properties or refurbish them to sell for a quick profit.
According to The Wall Street Journal, market experts estimate that private equity and other investors have raised $6-$8 billion to invest in single-family homes. Many of these investors have partnered with local real estate companies to purchase, sell, lease and manage these properties. Blackstone Group LP, through its subsidiary Invitation Homes, is the biggest investor in this space, acquiring 41,000 homes in the past two years, according to Bloomberg.
This trend reflects the shifting number of home owners versus renters, over the last few years. Since the 2008 financial crisis and the rollout of stricter mortgage loan requirements, an increasing number of Americans are choosing to rent homes.
Private equity's interest in this market is not without controversy. Housing advocates have voiced concern that private equity firms, in conjunction with other investors, may result in increased rental prices due to a lack of competition. Other than its price impact on the real estate market, these investments often pose operating and managing challenges, as, unlike multi-family and office buildings, they are not localized in one place.
Furthermore, there is the concern of aligning the short-term investment cycle of private equity with that of real estate, which tends to be longer term. Despite concerns, many see private investment in the single-family home rental market as positive, since it has the potential to lift property values, fix damaged, vacant houses and fill them with tenants. Proponents include President Obama, who in August 2013 praised institutional investors for helping to stabilize real estate values in neighborhoods that have been devastated by foreclosure, according to CNNMoney.
This article originally appeared in BDO USA, LLP's "Real Estate Monitor" Newsletter, Winter 2014. Copyright © 2014 BDO USA, LLP. All rights reserved. www.bdo.com
For more information on investing in single-family homes, contact one of the real estate professionals in Skoda Minotti's Real Estate & Construction Group by calling 440-449-6800. Or, please feel free to leave us a message below.
We also invite you to stay up-to-date with the latest business trends, tips and revenue generating ideas affecting you and your business today by subscribing to the Skoda Minotti Blog or by following us on LinkedIn, Twitter @skodaminotti, and Facebook or simply contact us at any one of our four office locations: Cleveland, Akron, Westlake or Tampa.
Free Offer: Want to stay up-to-date on issues facing your industry? Click here to subscribe to one of several real estate industry updates, delivered to your email inbox quarterly.