To invest in Investor heavy markets or Owner occupied markets

[Kiran R.]

Hi

I have been researching on which markets I should go after for my Buy and Hold Investments. Some of my criteria have been Jobs/Economy/Diverse industries, population growth.

As I narrow down to few cities/markets, I am learning that in some markets/neighborhoods the rentals to owner occupied is more than 50%, which is a strong indicator that its a good market for investors. Memphis, Atlanta, Dallas, Indianapolis, Las Vegas, Cleveland are few examples, where I think there is a large investor activity.

I have a couple of concerns buying in a neighborhood which has more investors than owners.

1. Since there are many rentals available, there will be pressure to lower rents to attract tenants, to keep the low vacancy rates.
2. My second bigger concern is, home prices heavily dependent on when investors(hedge funds/mid sized investment firms) decide to sell of their portfolio in the neoighborhoods, increasing the inventory, and having a downward pressure on the prices

I feel #1 is more likely to occur, and I am sure some of the BP members may have experienced or know some places where that has happened.

But for #2, I am curious to know if its just a stretch of imagination, or is just as likely as #1, and any markets/neighborhoods you have seen in the past

Looking forward to your opinions, thoughts and experiences !!

[Account Closed]

Those are both good points. Regarding point 1, I am seeing that already in some parts of Indianapolis. Lots of newly rehabbed homes that have been sold to investors are on the market, keeping rents from rising and increasing vacancy time. OTOH, rental neighborhoods have large pools of renters as well. Higher end owner occupied homes would be out of budget for many renters and those who could afford the rent could probably afford to buy as well.

#2 is valid as well. In many markets the prices surged last year when hedge fund activity was at its peak. BUt it has slowed down now and there is more inventory available. The reverse (hedge funds selling in large numbers) has not happened yet but its quite possible to see the converse in that case as well. However, the fund activity seems to happen in spurts and you could avoid buying/selling in those periods.