Where are the opportunities in the next 24 months

Question

I am new to BP but not new to REI. Where does everybody see the market going. I see a lot of these markets heated up. In fact a lot of the institutional investors are selling. Where are the opportunities going to be in the next 24 plus months???

William Jenkins · Answer

Nice move on selling.   You may have an opportunity to buy them all back for quite a bit less than what you sold them for.  Ha Ha.

The funds have driven prices up rather substantially her as well, but the price run up has been fading in the last 6 months or so.  The funds have a pretty basic strategy around here  and I would assume this rings true for other areas of the country as well.

1.  Buy

2.  Rehab

3.  Rent while market improves

4.  Sell for capital gain into recovered market

They have already moved through steps 1-3, but I see a big problem with step 4 (this may be specific to my market).  What is the problem you may ask....  The retail buyer does not exist in the areas they have been buying in.  The buyer pool for their properties are other investors like me.  Those investors won't pay the hedge funds what they require to make the return they were looking for.  I know for a fact that these funds are upside down on many of the properties they have bought over the years if they were to put them on the market today.

The next 6-12 months is going to be interesting to say the least.  I think many of them are currently working on strategies to offload their inventory (already see it in small bits and pieces).  Unless they come up with a unique way to clear their books, I think they may be forced to either (a) be long term landlords, or (b) liquidate their inventory at wholesale prices at a loss.  For some reason I don't see them being long term landlords.

Kendall T. · Answer

I think while the housing may continue up for a while, when interest Rates go up, that prices will fall.

Jay Hinrichs · Answer

@William Jenkins

problem with Hedge funds is they never read BP and don't know what the 2% rule is  :)

So when they have all this inventory they don't realize that especially in the mid west your not going to sell a lot of it at 1% or less as buyers know the risk reward scenario of those type of properties that really never appreciate.. there will be outliers of course.

When the hedges ran the wholesale prices in Atlanta up by double in less than 6 months I stopped buying I had at that time 45 homes I bought and I sold to them.. held them less than 18 months but make a huge profit... and can't make a profit if you don't sell.

Anna Watkins · Answer

While I'm relatively new as an 'informed' investor, what I see is huge institutional owners putting more and more houses on the market (aka 'dumping'), but not at "steal' prices.  It seems to me that they have fairly lame rental managers that don't screen or pay attention, so when a property doesn't rent for a while, it's listed for sale.  I just bought a house in Decatur/DeKalb County  (metro Atlanta) that had been listed for rent and for sale, and empty for over a year.  Using old pictures (it was a cloudy week and I couldn't take more or better), I listed it on Craigslist and got a great tenant (knock wood!! and thanking my lucky stars) in 6 days .  It wasn't a super fantastic deal (and the "rehab" totally ignored the infrastructure), but I'm still making a decent cash flow for my goals and I'm liking the future outlook for the property and the neighborhood.

This neighborhood is cool with adventurous buyers and flippers are moving in, but not popular yet with the "car alarm/baby jogger" crowd.  The hedge funds aren't in it for a true buy-and-hold game plan -- I've identified other properties in my target area held by the hedge I just bought from, and am asking they're interested in selling any of those too.  We'll see how that goes.

Jay Hinrichs · Answer

@William Jenkins

I agree with your assessment 100%  and of course it regionalized.  The markets I think the hedges did very well in or will do very well in.. are PHX  SoCAl and Nor CAL, Vegas.

Other markets like what your describing were there really has not been a retail buyer per se since about 2005 or 2006  I don't see those moving up and the only exit like you said is to you and others that use the BP guidelines to back into purchase price.

I started a thread called 2% rule kills values.. and its for this reason and in those markets that we will see what happens.

Elizabeth Colegrove · Answer

while are markets have heated up they are not back to the high by any means. While I see it getting more competitive, I think there will still beg rest deals out there. Especially off the mls, the key will just be smarter and knowing your houses. It will be knowing the true cost of a repair and if it's minor and repulsive or major and glossed over as not a big deal.

William Jenkins · Answer

I am in a major metro in Missouri, and I can tell you that most, if not all, institutional investors have put a moratorium on their buying in this part of the country.  Investor properties are still selling albeit more slowly and at slightly lower prices, but the big boys have certainly stepped back from the market.

I can confirm seeing some institutional selling, although I will admit that it is very small at this point.  I am seeing one here, one there, go on the market and I get the impression that they are slowly working on an exit strategy and testing the strength of the market.  Unfortunately or fortunately, however you look at it, I think they are finding that their model is not working very well in this particular region of the country.

One interesting thing I have seen in person, is that these funds have been valuing all of their properties quite a bit more often then they have in the past.  Probably a few different conclusions you could reach from that though....

Glen S. · Answer

I know blackstone is selling not sure where. ( I shouldnt of said a lot ) There is a lot of chatter that in some markets are ideal for them to sell because they have realized returns north 0f 40%.

Albert Hasson · Answer

Glen, where are you seeing the selling by the hedge funds?

There's no evidence that they are selling here in the Phoenix market.

Where are the opportunities in the next 24 months

Most Popular Reply