I think a lot of these ‘cash’ offers are people who have enough assets that, if they liquidated, they could pay cash but end up getting a mortgage anyway. That’s probably the route I’ll end up going as it’s an easy way to make your offer more competitive when you’re sitting on inflated assets.
Of course if stock valuations fall too much these sorts of stretch maneuvers may go away, but who knows.
Private equity bros are not just buying up anesthesia practices. Yay capitalism.
“Let’s focus on Invitation Homes, a $21 billion publicly traded company that was
spun off from Blackstone, the world’s largest private equity company, in 2017. Invitation Homes operates in 16 cities, with the biggest concentration in Atlanta, where it owns 12,556 houses. (Though that’s not much compared with the 80,000
homes sold in Atlanta each year, Invitation Homes bought
90 percent of the homes for sale in some ZIP codes in Atlanta in the early 2010s.) While normal people typically pay a mortgage interest rate between
2 percent and 4 percent these days, Invitation Homes can borrow money for far less: It’s getting billion-dollar loans at
interest rates around 1.4 percent. In practice, this means that Invitation Homes can afford to tack on an extra $5,000 to $20,000 to the purchase price of every home, while getting the house at the same
actual cost as a typical homeowner. While Invitation Homes uses a mixture of debt and cash from renters to buy houses, its offers are almost always all cash, which is a big leg up in a competitive market.
One way to think about Invitation Homes’ business strategy is to consider the value of the properties the firm is buying, relative to the rents they charge. According to a recent
SEC disclosure, Invitation Homes’ portfolio of homes is worth of total of $16 billion (after renovations), and the company collects about $1.9 billion in rent per year. That means it takes only about eight years of rental payments to pay back a typical house that Invitation Homes has bought. The usual rule of thumb for evaluating a fair sale price, says Kundan Kishor, professor of economics at University of Wisconsin-Milwaukee, “is that price to rent ratios are around 20 to 1.” When price-to-rent ratios are very high, it makes more sense for consumers to rent than to buy, and when they are low, it makes more sense to buy than to rent. That Invitation Homes is getting deals twice as good as a typical homebuyer shows that it’s not just buying any homes: It’s buying the specific houses with the greatest potential to be wealth-building for the middle class.”
“It’s not exactly accurate that investors are “
buying every single-family house they can find,” as some have suggested. If that were true, their market share in the United States wouldn’t be a piddling 15 percent. They’re really buying up the stock of relatively inexpensive single-family homes built since the 1970s in growing metro areas. They mostly ignore bigger and more expensive houses, especially ones that are move-in ready: Wealthy boomers and the nation’s finance and tech bros nab those properties. And they’re also ignoring cities with stable or shrinking populations, like Providence and Pittsburgh.
But investors
are depleting the inventory of the precise houses that might otherwise be obtainable for younger, working- and middle-class households, in the cities where those workers can easily find good-paying jobs, like Atlanta (22 percent of home purchases according to
Redfin data), Charlotte (22 percent), and Phoenix (20 percent). More importantly, they’re able to scour those markets scientifically and systematically to make cash offers on the most attractively priced properties. While normal people buy houses when they actually need to move somewhere, (savvy) investors buy houses several years
before a bunch of people need to move to an area. Whether they’re tracking where major employers are building new offices or looking at public school enrollment data, being ahead of the market gives big firms a big leg up.”
Invitation Homes bought 90 percent of the homes for sale in some ZIP codes in Atlanta in the early 2010s.
slate.com
Even more depressing…..
With help from the federal government, institutional investors became major players in the rental market. They promised to return profits to their investors and convenience to their tenants. Investors are happy. Tenants are not.
www.theatlantic.com
