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REI Nation Newsroom

4 min read

Investors Cooling on 'REO-to-Rent'

By Chris Clothier on Jun 7, 2013 12:25:00 PM

CNBC | June 7, 2013 | By Diana Olick

For the past three years they have been swarming over the hardest hit housing markets, buying distressed properties in bulk and pushing prices higher by double digits. The idea for these investors was not to buy and flip, but to hold and rent. Now some investors say they have priced themselves out of the market.

"Higher prices are reducing returns on investment, and investors are responding by cutting back on their purchasing plans until conditions sort out," said Chris Clothier, a partner in MemphisInvest.com and Premier Property Management Group, which commissioned a national survey of investors conducted by ORC International. "Fewer foreclosures, rising property values and competition from hedge funds are making it tough to find good deals on distress sales."

Nearly half the investors surveyed said they planned to cut back on purchases of homes in the coming year; in a survey last August, just 30 percent said they planned to cut back. Only 20 percent of investors said they plan to increase purchases, compared with 39 percent who said they would last August.

All this could have a significant impact on the housing recovery.

(Read More: Reverse Mortgages Backfiring on Seniors)

"If the investors gets sidelined—along with first-time buyers who are already sidelined—this housing market falls apart quickly," says Mark Hanson, a California-based housing and mortgage analyst. Hanson points to still-high levels of negative equity, which has kept many homeowners stuck in place.

Connecticut-based Carrington Mortgage Holdings, a hedge fund that had been buying distressed homes, recently stopped.

"We think the market is a little bit too frothy," said Carrington's Rick Sharga in an interview last month. Home prices are now up 12 percent from a year ago nationally, according to CoreLogic, but have risen far more greatly in formerly distressed markets where investors originally focused their purchases.

"The general consensus right now is that the bargains are drying up when it comes to buying foreclosed properties," adds Sharga.

(Read More: Rising Rates Turn Investors From REITs)

That is largely due to a lack of distressed homes for sale. The number of foreclosure sales in the first quarter of this year fell 22 percent from a year ago, according to RealtyTrac, a real estate website. The number of short sales, when the home is sold for less than the value of the mortgage, also fell, as rising prices provided less incentive for banks to agree to such deals. Some claim banks are actually holding onto repossessed homes, waiting for prices to rise higher.

Investors accounted for 19 percent of home sales in April, according to the National Association of Realtors, down from 24 percent in all of 2012. Investors include individual buyers as well as large hedge funds, but the hedge funds have been getting much of the attention, credited with juicing prices in the hardest hit housing markets like Phoenix and Las Vegas. Their so-called REO-to-Rent strategy (Real Estate Owned-to-Rent) has evolved into a new asset class, with two of the companies that engage in the practice going public this year as real estate investment trusts (REITs).

Still, the institutional investors are far from dominant players.

"Institutional investors play an extraordinarily small part," says Laurie Hawkes, president and COO of Phoenix-based American Residential Properties, which went public in May. "If you look at the number of dollars that are absolutely invested at this point, it's probably between 12 and 15 billion. On a house basis, that's about 120 thousand houses. If you think about the houses that have moved into the rental market due to subprime, it's about 5-6 million households, so if you do that math, it is a very small percentage."

(Read More: Home Prices Jump to Seven Year High)

Hawkes says she sees no shortage of opportunity in the space, since the rental market has grown so large and the costs for investors are still lower than replacement costs. Rents are still rising along with home prices nationally, but they are falling in the markets where investors initially set their sights.

"Single-family rents in the cities surrounding Phoenix proper— where all the 'investors' bought all the foreclosures—have plunged 25 percent in the past 5 months," says Hanson, who recently visited the market, meeting with rental agents and investors.

Hanson also points to a high vacancy rate among investor rentals. Still, over half the investors surveyed by ORC International said they plan to hold them for at least five years. One third said they would hold for 10 years or more.

"Investors aren't going to dump a lot of properties into a market and run the risk of losing money or devaluating the rest of their portfolios," he says. 

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2 min read

Survey: Single-Family Renters More Likely to Stay Longer

By Chris Clothier on Feb 25, 2013 12:26:00 PM

Wall Street Journal | February 25, 2013 | Nick Timiraos

Renters who opt for single-family homes over apartments are more likely to live in those homes for five years or longer and more interested in ultimately becoming a homeowner, according to a study released Monday.

Some 26% of single-family-home renters said they planned to live in their current rental for five years or more, compared with 22% for renters in multifamily buildings. Three out of every five single-family renters also said they planned to become a homeowner within five years, compared with just 44% of apartment renters.

More than 14 million renters live in single-family homes in the U.S., but over the past year the sector has received much more attention from private-equity funds and other institutional investors looking to build large pools of rental homes by purchasing foreclosures and other distressed properties at fire-sale prices.

While some critics have questioned the ability of these firms to effectively manage hundreds or thousands of single-family homes scattered across a city, the lower turnover of single-family tenants could help reduce costs for landlords.

The survey, conducted by ORC International for Premier Property Management, also found that a majority of apartment and single-family renters indicated that they rent because they enjoy the lifestyle, and not because they’re unable to get a mortgage. Less than one third of renters cited an inability to get a mortgage as the reason they won’t become a homeowner within five years.

Compared with apartment tenants, tenants of single-family homes are twice as likely to have kids. They also tend to have higher median household incomes and value neighborhood amenities such as good schools and parks more than apartment dwellers.

ORC conducted the survey of 1,006 adults between Jan. 10 and Jan. 13.

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2 min read

Survey Shows Active Real Estate Investors Still Buying

By Chris Clothier on Dec 11, 2012 12:15:00 PM

Realtor.com |  December 11, 2012 | By Diedre Woollard

A new survey shows that active real estate investors are still ready to buy up plenty of properties. A joint BiggerPockets.com/REI Nation survey conducted by ORC International for BiggerPockets.com shows that despite rising prices and shrinking foreclosure inventories, 65 percent of active real estate investors plan to buy as many or more residential properties in the next 12 months as they did in the past year. A total of 39 percent of active investors intend to increase their purchases over the next twelve months while 26 percent plan to buy as many in the year to come as they did in the past year. This group represents an overall pool of 4.5 million investors. Only 30 percent said they plan to buy fewer properties than they have in the past. Last year investors purchased 1.23 million homes, a 64.5 percent increase over 749,000 in 2010, according to the National Association of Realtors.

Investors Contribute To Local Economies

Some 3 percent of American adults, or 7 million people, consider themselves to be real estate investors and an additional 9 percent of all Americans own investment property today but have no current plans to buy more. Investors are a huge part of the economy, spending $9.2 billion a year to repair housing with a media expenditure of $7500 per property. The survey found that real estate investors are spending more than four times as much as the federal Neighborhood Stabilization Program to repair and rehabilitate the nation’s housing stock. Twenty percent will spend $10,000 to $30,000 on their next property and 16 percent plan to spend more than $30,000. “This survey puts some hard numbers behind the contribution that investors are making towards not only improving neighborhoods and fighting blight, but also towards driving the economy. Those dollars provide jobs and put money into local economies with local companies,” said Chris Clothier, a partner with REI Nation. 

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2 min read

Repeat Home Buyers Fuel Housing Recovery

By Chris Clothier on Oct 8, 2012 12:28:00 PM

CBS Money Watch | October 8, 2012 | Ilyce Glink

Across most of the country, home prices remain affordable and rents continue to rise. And while today's investors are helping the housing recovery, they're not completely responsible. Data from the National Association of Realtors (NAR) suggests that traditional repeat buyers are driving today's market.

According to a recent joint survey by BiggerPockets.com and Memphis Invest, 39 percent of investors plan to buy more properties over the next 12 months than they did over the last year. Twenty-six percent of investors plan to purchase the same number of properties.

"Though housing markets are changing across the nation, investors are still seeing great opportunities. Hundreds of thousands of foreclosures and short sales are coming to market and rents are continuing to improve in most markets, creating a positive environment for the nation's 2.81 million residential real estate investors," Joshua Dorkin, founder and CEO of BiggerPockets.com, said in a press release.

"They will certainly continue to be major player in the nation's housing economy for the foreseeable future," he added.

According to the survey, one out of eight -- or 28.1 million Americans -- either consider themselves to be residential real estate investors or own residential investment properties today, according to the survey. That high number is not surprising when you consider many homeowners are renting out properties they'd rather sell.

NAR data shows investors accounted for an average 22 percent of the market share from 2003 to 2011.

There are perks to investors taking an active interest in today's real estate market. With millions of Americans actively investing in real estate, billions of dollars are being poured into repairs. The results of the survey reveal that real estate investors are spending more than the Department of Housing and Urban Development (HUD) to rehabilitate neighborhoods.

Recent NAR data suggests that investors absorbing the over-supply of inventory helped stabilize the housing market. Residential real estate investors have spent more than four times the amount of money HUD's Neighborhood Stabilization Program has to repair foreclosed and short-sale homes, the BiggerPockets.com/Memphis Invest survey says.

At a median expenditure of $7,500 per property owned, investors are spending a total of $9.2 billion per year to repair the damage caused by foreclosures. By comparison, Congress has authorized a total of about $7 billion for the Neighborhood Stabilization Program over the past four years.

Chris Clothier, a partner with Memphis Invest, believes investors are improving neighborhoods and driving local economies. They are purchasing properties that would otherwise sit vacant for months, dragging down area home prices, and using local electricians, plumbers and labor to update the homes. "Those dollars provide jobs and put money into local economies. It's clear that investors are the ones who are risking their own money to improve and stabilize neighborhoods for new owners or tenants," Clothier said in a press release. 

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2 min read

Investors Ready to Take Bigger Bite Out of Market

By Chris Clothier on Sep 24, 2012 11:58:00 AM

Realtor Magazine | September 24, 2012

Rising home prices haven’t deterred investors from the housing market, according to a new survey by real estate-centered companies BiggerPockets.com and Memphis Invest. In fact, nearly 40 percent of real estate investors say they plan to purchase more properties over the next 12 months than they did last year. Twenty-six percent say they plan to buy as many as they did last year, according to the survey. 

Investors have made up a big part of the housing market in recent months. Investors bought 1.23 million homes last year—a nearly 65 percent increase over the 749,000 they purchased in 2010, according to the National Association of REALTORS®.

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2 min read

Memphis Invest Announces YTD Sales, Holds Investor Weekend

By Chris Clothier on May 28, 2012 12:19:00 PM

DS News | May 28, 2012 | Tory Barringer

Memphis Invest announced today that it has sold 229 homes to out-of-town, independent investors since January in a run-up to a recent investor weekend.

Memphis Invest hosted the investor weekend May 11-13 in order to showcase local single-family rental properties and to demonstrate Memphis’ strengths as a rental market. The company specializes in locating and renovating distressed properties before placing tenants in them. While some people renovate and flip these houses, it’s becoming more common for investors to buy and hold houses to take advantage of a growing demand for single-family rental homes.

In addition to showcasing homes at the event, Memphis Invest presented a $61,000 donation to Memphis-based St. Jude Children’s Research Hospital. The company announced in January that it and its partner, Fortune Builders, Inc., would donate to St. Jude a portion of the proceeds from all of its home closings from January to the end of the investor weekend. Memphis Invest also announced that it would give an additional $1,000 to St. Jude for each of the homes sold during the weekend, a total of $23,000.

“Anytime we’re able to show investors properties in person, it really makes the entire process come to life and it offers a tangible link to the area where they’re directing their capital,” said Chris Clothier, partner at Memphis Invest. “People from New York, California and even Canada and Asia who could invest anywhere in the world see the benefits of investing in property in Memphis. That says a lot about the future stability of our community. Because St. Jude Children’s Research Hospital is such a defining cornerstone of Memphis, it was only fitting that we partner with our investors to support the hospital.”

Memphis Invest, based in Memphis, Tennessee, Invest provides single-family rental real estate investment services to domestic and international clients looking to include residential real estate ownership in their investment portfolios. 

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4 min read

Sometimes real estate investment strategies work – ’til they don’t

By Chris Clothier on Oct 9, 2011 2:21:00 PM

The American Genius |  October 9, 2011 | Jeff Brown

Real estate investment strategy

The cornerstone of any real estate investor’s strategy must always be — having a Plan and executing it on Purpose. Clearly, there are plans, and there are plans. Also, it’s almost axiomatic that this or that strategy works best for this or that set of circumstances.

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