Hedge Funds and Single Family Properties

There have been stories of hedge funds and big banks putting pressure on the single family housing market by coming in and purchasing properties for cash to add to rental portfolios. I have heard it from other Realtors, investors, and home buyers alike. The rumor is that by doing this, the institutions have driven up the prices, and once they decide to start selling off these properties, prices will crash. Is this the reality of the situation?

The National Multifamily Housing Council tracks statistics of US households. Some of the statistics they keep are based on owner-occupancy, renter-occupancy, what type units are rented, and ownership of institutional investors, among many other rental statistics.

When we look at 2015, the last year that data is available for, in the United States, there were 118,208,250 households. Of those, 43,701,738 were renter-occupied, which accounts for approximately 37%. Of those renter-occupied units, 15,177,698 of them were single family structures (Homes, Town homes, and Condos, units that are individually deeded and owned, so not multifamily properties).

Now when we dig further into Institutional ownership of rental properties, we can see that the largest owners only have multifamily and apartment assets in their portfolios. In fact, only five of the top 50 portfolios are invested in single family units, as shown below.

 

These five largest investors account for approximately 108,000 single family units total. In fact, when we dig deeper, we find that there are a total of only 250 entities that own 250 or more properties, which accounts for approximately 260,000 properties. This is approximately 1.7% of the single family rental properties in the United States.

So that means the vast majority of rental properties are owned by smaller investors in smaller quantities.

Do I think if there were 260,000 additional properties that came to market across the country it might impact prices? Probably to a small extent, but I don't think it would be significant. The chances of them all coming on the market at once is highly unlikely, but even if they all did in the course of a year it would probably stabilize the price point that most of these homes are located in, since as we know the lower price point that investors, first time home buyers, and those looking to downsize, is currently the most competitive for buyers and, at least in Charlotte, has the lowest number of months of supply in history.

As always, if you or someone you know has any questions about our current market, whether to buy, sell, or invest, I am always available to answer those questions. Do not hesitate to contact me!

Steele Creek May 2017 Update

Steele Creek is an area of Southwest Charlotte that has been one of the hottest real estate markets in the area. I have witnessed 15% increases in price in individual neighborhoods in the past year in some cases. Before we get into the current state of the market for that area, let's go into a little more detail of some of the things this area has to offer. for its residents, which helps us to explain the current conditions.

Transportation

Transportation is one of the main benefits of Steele Creek. Steele Creek is located just outside I-485 between I-85 and I-77 on the Southwest side of Charlotte. It is also a short commute from this area to the Charlotte Douglas International Airport, which is a regional hub for American Airlines.

Entertainment

Steele Creek is also in proximity of some of Charlotte's great entertainment choices. Located in Steele Creek on the border of North and South Carolina is Carowinds Theme Park, which includes a water park as well. Just a short trip up I-485 North from this area is the US National Whitewater Center, which includes whitewater rafting, zip lines, climbing walls, bicycle trails, and much more. Another new addition to Steele Creek is Topgolf, which has put a whole new spin on the traditional driving range.

Shopping

It doesn't matter what you are searching for, you can buy it in Steele Creek. The intersection of South Tryon Street (NC-49) and Steele Creek Road (NC-160) has long been a center for commerce. This intersection has three different shopping centers, including groceries, big box stores, clothing, local dining options, and fast food options. All along South Tryon you will find shopping. One of the newer shopping areas in Steele Creek is in the Berewick area. This area is centered around the Charlotte Premium Outlets and has been building more retail, dining, and grocery stores around this hub. There is also a plan for a 1,400 acre mixed use development called the River District slated to begin soon.

Market Conditions - 28273 Zip Code

The real estate market in Steele Creek is one of the hottest in the area. If you are a Buyer looking to move to this area, you can expect a lot of competition in your search. If you are a Seller, it is a great time to list. Sellers are typically seeing short times on the market, less competing listings, and, in many cases, multiple offers (when a home is priced properly).

Some of the tell-tale indicators of a market are statistics such as months of inventory, list price to close price, and days on market. Let's take a look at these for Steele Creek, in particular the 28273 Zip Code.

Months of Inventory

Months of inventory in a market are determined by dividing the number of homes available by the number of homes that close per month on average. A market with six months of inventory is considered stable. Here is what the month of May looked like for Steele Creek:

As you can see, there is very low levels of housing supply under $250k. Even above this price point the inventory is still low, but it is not as dire of a situation for available properties. This low inventory will lead us into the next two metrics.

Days on Market

With such a low inventory, it should not come as a surprise that once houses are listed, they are scooped up right away. Looking at the same price ranges for the 28273 Zip Code, we can see that homes are not lasting once listed.

Not a surprise here that the ranges with the lowest inventory have the shortest time on the market.

Percent of List Price

Now that the days on market and low level of inventory are known, it should not come as a surprise that Sellers are having their demands met for the most part when it comes to their asking price.

Again, not much of a surprise here. Buyers are having to come to the Seller's demands in these cases. And since these are averages, it is not uncommon for a home to be sold above the actual list price.

Having someone to represent you who understands the current market is of utmost importance in these times. There is a lot of competition out there, you don't want to get left behind.

Southwest Charlotte Rental Analysis

My real estate career began with investing in buy and hold rental properties. To me, the monthly income that is produced by having a rental property is a great way to get into real estate without having to invest a great deal of time, and possibly without having to invest a great deal of money as well.

Recently I looked at four zip codes in Southwest Charlotte to see where investors were spending money, how much they were spending, and estimated what kind of returns they were seeing. There is so much data available through the Multiple Listing Service, and I felt sifting and sorting through this data would be important for me to understand our local market, both for myself and my clients. THIS DATA IS ALL ACTUAL CLOSED INFORMATION FROM THE MULTIPLE LISTING SERVICE.

Assumptions

In order to have a fair basis to compare, I normalized purchases that were financed to approximately what interest rates are now even though the rates that individual purchasers were probably different. I needed a way to look at everything on a level surface and that seemed like the most reasonable way to do it. I find that investment mortgages typically run 75 to 100 basis points (0.75% to 1%) higher than personal home loans. With 25% down, you would receive a better rate than with 20% down.

In future posts I will tell what terms I used as well, but for this initial one I used an interest rate of 5% and based the mortgage on a down payment of 25%. Currently, first home loans are running about 4.25%, so adding the 75 basis points, we get to right at 5%.

Other assumptions I made were what insurance would cost. Silmilar to interest rates, these rates will vary from person to person and property to property, but I included my normal figures to provide a starting point.

These calculations do not include vacancy, maintenance, and property management, but also do not include future appreciation or rent increases.

Actuals

I have used actual amounts for property taxes and HOA fees. These items are included in the listings so I could use the actual numbers.

Results

Here is a summary of what has sold in each of the four zip codes I examined. 28273, which has been a hot rental market for some time now, appears to still be a great place for investors looking for monthly cash flow on their investments.

 

I do have a spreadsheet with additional breakdown of each individual property for these zip codes, but posting an image if it would not do justice since it would be impossible to read. If you are curious to see the data, please don't hesitate to email me, tom.oneil@kw.com, and I will certainly pass it along. Also, if you have other Zip codes that I could provide a similar analysis on, please let me know.