It was notable in the years after the housing collapse that the composition of investors in single family real estate changed drastically. Long the providence of small investors - individuals who purchased a few properties to either flip or rent out for long-term income - the avalanche of foreclosures and plummeting prices suddenly lured in both the types of institutional investors who traditional owned large apartment complexes and those investors who had never before considered residential real estate for their portfolios.
Some investors were encouraged to become landlords by lenders or guarantors such as FHA who suddenly found themselves owning thousands of single family homes. They encouraged bulk purchases and in some cases facilitated them by bundling homes into geographically cohesive packages for sale at auction. Other investors partnered with local property management companies to acquire and manage properties in smaller batches.
RealtyTrac recently examined these investor purchases, looking at nearly 500,000 transactions, properties purchased between 2012 and 2014, to determine where they occurred and how good an investment these institutional investors, defined as those who purchased 10 or more properties within a single calendar year, actually made.
In the first part of its study, released in December, RealtyTrac looked at over 200,000 of the purchases to determine the return on investment (ROI) the investors had realized and whether and in which markets the profits might encourage them to cash out.
They found that within this subset of homes institutional investors, as a group, purchased homes that averaged $167,556 and have appreciated to an average value of $211,897, a ROI of 26 percent or $8.9 billion if all of those properties were sold.
The four largest investors and the number of their acquisitions were Blackstone/Invitation Homes (14,108 properties over three years), American Homes 4 Rent (12,811), Colony American Homes (4,935) and Fundamental REO/Progress Residential (3,208). RealtyTrac estimated that, for those properties where sufficient information was available, these investors, backed by Wall Street or private equity money, have potentially gained $1.2 billion in equity, or a 23 percent return.
RealtyTrac attempted to determine which properties had the highest rate of return and thus would provide the greatest motivation for investors to cash out. Not surprisingly they found the highest ROI was for properties purchased in 2012 (the market is generally considered to have bottomed out in the first quarter of that year). They sliced and diced the data in a number of ways but found that the states with the highest percentage of gained equity were Delaware (63 percent), California (47 percent), New Hampshire (44 percent), and Oregon (42 percent). On a dollar basis gained equity over the last three years was highest in California ($1.9 billion) Florida ($1.4 billion), Georgia ($662 million), and Arizona ($546 million). Metros with biggest equity returns include San Francisco, Portland, San Diego, and Los Angeles. RealtyTrac concluded that the four investors have the most motivation to "cash out" based on potential returns from gained equity in Chicago, the Melbourne and Orlando metro areas in Florida, Columbus, Ohio, Indianapolis, Atlanta, Jacksonville, Florida, and Charlotte.
In a second study released this week the company looked at institutional investment in single family houses as a whole but focused on those four largest investors to determine how likely they are to be your landlord if you are renting a single family home.
They said that institutional investors purchased a total of 460,840 single family homes during the period of January 2012 to October 2014, just under 5 percent of all sales. However within the 1,804 counties in which institutional investors operated, their purchases were 0.63 percent of sales. The largest number of purchases, 19,133, were in Maricopa County (Phoenix) followed by Harris County (Houston) with 14,990, Mecklenburg County (Charlotte) at 8,852, Tarrant County (Dallas) (8,387), Wayne County (Detroit) (8,153), and Clark County (Las Vegas) (7,991). On a percentage basis, the highest percentage of purchases in counties with populations exceeding 100,000 occurred in those that included Atlanta, Charlotte, Shreveport, Memphis, and Oklahoma City.
The top four institutional investors listed above purchased a total of 45,747 single family properties, 0.14 percent of all such sales in the 234 counties where they operated. These investors were most active in Maricopa County (4,851 properties), Mecklenburg County (2,548), Harris County (1,694), Cook County (Chicago) (1,598), and Gwinnett County (Atlanta) (1,496). Based on the percentage of total sales these investors were most active in counties surrounding Atlanta, Charlotte, Seattle, Chicago, and Nashville.
In the 25 counties where the four investors had the largest impact, median income was about $1,200 higher than in all counties of comparable size but both rents and property values were lower. Average fair market rent for a three-bedroom house in the 25 counties was $1,192 in 2014 compared to an average of $1,203 in all 557 counties nationwide with a population over 100,000. The average median sales price in October 2014 for these 25 counties was $149,168 compared to $193,380 in comparable locations.
RealtyTrac presents its data but draws few conclusions, leaving us with a major question. Since investors, large and small, are largely credited for holding the residential real estate market together during the housing crisis and preventing an even worse collapse in values, will there be an equal but opposite reaction if they decide in large numbers that they have maxed out the market's potential and opt to cash out?
