Graciously accepting what the market has offered in recent years, hedge funds and substantial investment companies have promoted the acquisition of cheap real estate. Subsequently, the downturn of the housing sector has provided investors of all levels with the opportunity to procure large quantities of relatively cheap properties. However, deals are becoming increasingly hard to come by and those in the industry have already begun to reevaluate their exit strategy. Buy-to-rent properties are quickly becoming a commodity.
Current market conditions have caused investors to transition from flipping homes to renting them out. Otherwise known as the buy-to-rent strategy, firms are purchasing homes at a relatively cheap rate, fixing them up and renting them to prospective tenants. In doing so, savvy investors are able to recoup costs during the lease and then sell the property in the future.
Seven major firms are associated with these purchases and they have already bought nearly 78,000 units, according to a new report from Morgan Stanley entitled “The New Age of Buy-To-Rent Institutions Are Here To Stay.” Of particular interest to the investment community, however, is the rate in which the buy-to-rent market is expected to increase. On a national level, the buy-to-rent market is estimated to be worth approximately $17 billion. In the next few years, analysts predict it may reach upwards of $100 billion, making it very enticing for any investor.
The overwhelming statistics and the mere involvement of Wall Street firms has caused a great deal of concern for skeptics. However, the drive for real estate profits may actually have a beneficial social impact. The recent trend to acquire buy-to-rent properties may actually place the housing sector in a position to excel.
According to Morgan Stanley, the seven firms invested in this exit strategy own 77,700 properties. The breakdown of ownership is as follows:
- Blackstone Invitation Homes (30,000 Units)
- American Homes For Rent (16,000 Units)
- Colony American Homes (12,800 Units)
- JP Morgan (5,000 Units)
- Waypoint (4,600 Units)
- Silver Bay (5,500 Units)
- American Residential (3,800 Units)
While the acquisition 77,700 homes may appear to be significant, on a national level they represent a fraction of available housing. According to the National Association of Realtors (NAR), home sales are now exceeding 5 million units per year.
Should the buy-to-rent market increase six-fold, as Morgan Stanley anticipates, it will still amount to just seven percent of the current marketplace. Assuming analysts are correct, the buy-to-rent market could produce encouraging trends for the housing sector.
The number of distressed properties has been dramatically reduced. Subsequently reducing the amount of foreclosures, short sales and REOs that drive down prices in local markets. Getting these homes sold, refurbished and off the market helps everyone who would prefer to see rising home prices.