The modus operandi of the mass buyer - a case study

[Chris Martin]

We've seen posts here on BP about "bigger players" getting into some markets. Some are reported to be hedge fund buyers that are renting the properties out, some seem to be specific to bank REO property. According to this BP topic, one hedge fund manager was bold enough to proclaim his vision of putting the small guys all out of business! From today's J Scott post (which prompted me to post this topic), a big buyer in his area terminated a contract "because they got their funding pulled" and the unanswered question remains is it a sign of things to come?

Well, I'm not sure anyone knows for sure. But I can tell you the facts about recent transactions in my area. As I posted in J Scott's thread, we have one known 'institutional' buyer in my area, Wake county NC. This one player has bought 138 houses in 2013 (96 on 2-7-2013) per county records. I don't have to-the-day records but the data is current as of a week or so. My sample set is the complete record of all property cards in the county. They only bought 14 in 2012 (0 in prior years) so are a new entrant in this market. There is no sign they are stopping.

So here's a Myth or Reality summary based on factual data from this buyer. From a methodology perspective, I'm using the relevant fields of 362,386 county property card records in a series of queries to obtain the results. Historically I find the county record data to be very accurate, and since I can search on a property card basis, I can conclude that my findings should be a very good representation of this institutional buyer. What I don't have at my disposal are any MLS or market dynamics (e.g. are these listed properties?... I can't tell.)

Myth or Reality?

1) This whole institutional buyer thing is hogwash... I used to believe this. From some (not J Scott) BP member responses, like in this topic about REIT buyers, I couldn't conclude that the sales were really happening. The posters provided no details, etc., and that looked like posers rather than posters. But I have proof that 'institutional' buying is real where I am.

2) These "players" came out of no where and started buying... Again, I'd say this is reality. The buyer in my area had 0 (zero) properties 4 months ago. Now they have more property then HUD and VA combined.

3) They are only buying new or almost new houses... This is very simply myth. Less than 25% of their purchases are 2012 or newer properties. The oldest? 1992. About 23% were properties built before 2000, 69% built before 2010.

4) they must be buying in one area and not spreading themselves all over the county... Surprisingly, myth. Although 54% of their buys are in Raleigh, they have property in 12 different towns, all but 3 (Raleigh, Fuquay, Zebulon) where they have less than 10.

5) these buyers must be buying cheap property.... The short answer is myth. The average price, based on tax stamps, was $168,140. Not one property was bought for under $100K.

6) These guys are 'Flash in the pan'... these guys are not in for the long haul... You decide. Announcement of Proposed Initial Public Offering, dated 2-27-2013

[Chris Martin]

@Bill Gulley

Well, it's been almost 10 years since American Homes 4 Rent (AH4R), in December 2012, burst onto the scene in Raleigh and started buying dozens (and ultimately hundreds) of properties a month. In their target market, which overlapped mine, AH4R over the course of 18 months or so bought everything available. Within 18-24 months they started bidding at the courthouse and, it turned out, my career was over. I couldn't compete with a multibillion-dollar operation. LOL! We were/are just some locals trying to make a living. 

In the past 10 years, AH4R haven't sold much. Other than a trickle, they stopped buying in volume in 2015Q1. Their last SEC 10-Q filing shows they have 2,165 SFR in Raleigh. I believe them. They have their properties scattered about in various holding companies like AMH 2014-3 BORROWER LLC (296 units.) Lennar is the largest parcel owner at 1,658 parcels in Wake County, followed by City of Raleigh (1,255), Pulte (1,066), and State of NC (664).

10 years ago, I said "Short term, I think they are doing more good than harm." For my local market, I think that was indeed the case.