RealtyTrac asks if Wall Street is your Landlord. We ask for how long?

It was notable in the years after thernhousing collapse that the composition of investors in single family real estate<bchanged drastically.  Long the providencernof small investors – individuals who purchased a few properties to either fliprnor rent out for long-term income – the avalanche of foreclosures and plummetingrnprices suddenly lured in both the types of institutional investors who traditionalrnowned large apartment complexes and those investors who had never before consideredrnresidential real estate for their portfolios. rn</p

Some investors were encouraged to becomernlandlords by lenders or guarantors such as FHA who suddenly found themselvesrnowning thousands of single family homes. rnThey encouraged bulk purchases and in some cases facilitated them byrnbundling homes into geographically cohesive packages for sale at auction.   Other investors partnered with localrnproperty management companies to acquire and manage properties in smallerrnbatches.  </p

RealtyTrac recently examined theserninvestor purchases, looking at nearly 500,000 transactions, propertiesrnpurchased between 2012 and 2014, to determine where they occurred and how goodrnan investment these institutional investors, defined as those who purchased 10rnor more properties within a single calendar year, actually made. </p

In the first part of its study,rnreleased in December, RealtyTrac looked at over 200,000 of the purchases torndetermine the return on investment (ROI) the investors had realized and whetherrnand in which markets the profits might encourage them to cash out. </p

They found that within this subset ofrnhomes institutional investors, as a group, purchased homes that averagedrn$167,556 and have appreciated to an average value of $211,897, a ROI of 26rnpercent or $8.9 billion if all of those properties were sold.</p

The four largest investors and thernnumber of their acquisitions were Blackstone/Invitation Homes (14,108rnproperties over three years), American Homes 4 Rent (12,811), Colony AmericanrnHomes (4,935) and Fundamental REO/Progress Residential (3,208). RealtyTracrnestimated that, for those properties where sufficient information wasrnavailable, these investors, backed by Wall Street or private equity money, havernpotentially gained $1.2 billion in equity, or a 23 percent return. </p

RealtyTrac attempted to determine whichrnproperties had the highest rate of return and thus would provide the greatestrnmotivation for investors to cash out. rnNot surprisingly they found the highest ROI was for properties purchasedrnin 2012 (the market is generally considered to have bottomed out in the firstrnquarter of that year).  They sliced andrndiced the data in a number of ways but found that the states with the highestrnpercentage of gained equity were Delaware (63 percent), California (47rnpercent), New Hampshire (44 percent), and Oregon (42 percent).  On a dollar basis gained equity over the lastrnthree years was highest in California ($1.9 billion) Florida ($1.4 billion),rnGeorgia ($662 million), and Arizona ($546 million). Metros with biggest equity returns include San Francisco, Portland, SanrnDiego, and Los Angeles.  RealtyTracrnconcluded that the four investors have the most motivation to “cash out”rnbased on potential returns from gained equity in Chicago, the Melbourne andrnOrlando metro areas in Florida, Columbus, Ohio, Indianapolis, Atlanta,rnJacksonville, Florida, and Charlotte.</p

In a second study releasedrnthis week the company looked at institutional investment in single familyrnhouses as a whole but focused on those four largest investors to determine howrnlikely they are to be your landlord if you are renting a single family home.</p

They said thatrninstitutional investors purchased a total of 460,840 single family homes duringrnthe period of January 2012 to October 2014, just under 5 percent of all sales.  However within the 1,804 counties in which institutionalrninvestors operated, their purchases were 0.63 percent of sales.  The largest number of purchases, 19,133, werernin Maricopa County (Phoenix) followed by Harris County (Houston) with 14,990,rnMecklenburg County (Charlotte) at 8,852, Tarrant County (Dallas) (8,387), WaynernCounty (Detroit) (8,153), and Clark County (Las Vegas) (7,991).  On a percentage basis, the highest percentagernof purchases in counties with populations exceeding 100,000 occurred in thosernthat included Atlanta, Charlotte, Shreveport, Memphis, and Oklahoma City.  </prn<p </p

The top four institutionalrninvestors listed above purchased a total of 45,747 single family properties,rn0.14 percent of all such sales in the 234 counties where they operated.  These investors were most active in MaricoparnCounty (4,851 properties), Mecklenburg County (2,548), Harris County (1,694),rnCook County (Chicago) (1,598), and Gwinnett County (Atlanta) (1,496).   Basedrnon the percentage of total sales these investors were most active in countiesrnsurrounding Atlanta, Charlotte, Seattle, Chicago, and Nashville. </p

In the 25 counties wherernthe four investors had the largest impact, median income was about $1,200rnhigher than in all counties of comparable size but both rents and propertyrnvalues were lower.  Average fair marketrnrent for a three-bedroom house in the 25 counties was $1,192 in 2014 comparedrnto an average of $1,203 in all 557 counties nationwide with a population overrn100,000. The average median sales price in October 2014 for these 25 countiesrnwas $149,168 compared to $193,380 in comparable locations.  </p

RealtyTrac presents itsrndata but draws few conclusions, leaving us with a major question.  Since investors, large and small, are largelyrncredited for holding the residential real estate market together during thernhousing crisis and preventing an even worse collapse in values, will there bernan equal but opposite reaction if they decide in large numbers that they havernmaxed out the market’s potential and opt to cash out? 

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