I like to watch what the big boys, the institutional investors, are doing at all times. They hire a lot of smart MBA’s to build pricing, profitability, and forecast models, something I like to do as well.. As you may know, institutional firms started gobbling up residential properties (1-4 units) by the thousands in the last market crash.
Given the current state of the housing market- elevated housing prices, decelerated rent growth, higher interest rates and expensive remodeling costs, they are finding it harder to buy properties for sale that fit their buy box ( that provide the needed returns). Most of them have been sidelined and not buying since 2022.
New York based Pretium Partners is the 800 lb gorilla in the space, they own 97,000 single family rental properties. Slightly more than Daystalker. Invitation Homes is second with 85,000 homes, tied with Daystalker.
The fact that none of these guys are buying homes speaks to what they are forecasting prices to be in the next 18-24 months. Flat. No decreases in most markets ( parts of Fla and Texas are seeing modest drops) but the days of 10-20% increases appear to be over. Huge problem. If your business is buying homes and there are no good buys, what do you do with un deployed capital?
That has been my problem since about the same time. Nothing good to buy, so what do I do with my stock market profits? I have been on a steady diet of stock market profit taking for the last 6 years ( since 2019). Up until 2022 I was using that cash to buy properties but after that with no good buys I started lending it out to consumers as real estate secured loans. In 2023 I also started buying NPL’s ( non performing real estate loans). When I fund a real estate loan I try and keep my terms consistent, 9.99% interest rate, 10 points and a ballon payment after 12 months. The cash on cash returns are about 17% a year. I have a few mill in the loan portfolio so I’m happy with 17% return and then turn the money over every year. That generates 10 new points in fees. It’s magical.
Wrapping this up before I lose the three of you still reading,( too optimistic?) what are the big boys doing? 2 things:
1) Lo and behold they are making loans to builders and developers.
2) They are going into a market they looked down on before: Section 8 housing.
Section 8 housing involves renting to welfare recipients, or low income folks. I tried that with some units I owned in Long Beach. Bad experience. The government pays the rent for the tenants, so it’s never late. But you can imagine the quality of the tenants. I rented to one family and then three families moved in when I wasn’t looking. It was $15000 to rehab the place every time they vacated. Didn’t work for me and it smacks of desperation for these big boys to be entering that space. I mean there is a reason they used to turn their nose at that business in years past.
2025 will be another year of slow sales and appreciation. That’s what I’m getting from all this.
I only buy in SoCal, but this is where Pretium owns most of their 97000 homes. Pretium is owned by Progress Residential which is why you see the name Progress in this chart.
Fun read. Thanks. I like reading your RE stuff. It confuses me even more than I already am, but that’s ok! 😂
In my amateur opinion, nothing is going to change much until rates drop….in fact, prices could up due to the loss of illegal labor, less inventory/higher prices…..which is a bad thing to me?!? I felt the prices in North Texas went up too high/too fast. It sure felt like 2006/7 again. But the bubble never popped. Now these million dollar homes an hour east of Dallas are becoming the norm. I still can’t wrap my head around it.
Funny story, in 2018, I was doing a water inspection on a big, old style 1930s mansion in Dallas. Owner refurbed it, but kept it to period. I asked them about the house next door that was for sale. Said it was 600k, my eyes got big as saucers. She laughed, yea, they bought it in 2010 for 250k.
That place is 1.2 -1.3 now. Mindblowing.