{"id":1626,"date":"2021-08-20T10:00:45","date_gmt":"2021-08-20T14:00:45","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=1626"},"modified":"2024-04-25T23:19:28","modified_gmt":"2024-04-26T03:19:28","slug":"residential-real-estate-investors-truths-and-myths","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/residential-real-estate-investors-truths-and-myths\/","title":{"rendered":"Residential Real Estate Investors: Truths and Myths"},"content":{"rendered":"\n

Pandemic Highlights Differences Between\nLocal Landlords and Big Companies<\/em><\/h1>\n\n\n\n
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In the middle of a housing shortage, rental companies attract\na certain amount of criticism. What buyer wants to wind up in a bidding war\nwith a big company? And that\u2019s exactly what happens in many of the top\ncompetitive markets. Some hopeful home buyers just can\u2019t win. And they can end\nup in rental homes \u2014 paying rent to those same big companies.<\/p>\n\n\n\n

Buying or building rental units is lucrative. Although corporate\ninvestors comprise a relatively small percentage of the U.S. rental market, their\nnumbers are steadily growing.<\/p>\n\n\n\n

Non-commercial properties \u2014 the \u201cmom and pop\u201d investors with\nfour units or fewer in a building \u2014 supply a great deal of the country\u2019s\naffordable housing. Many buy properties in college towns or dynamic tech hubs\nwhere a large portion of the population prefers to rent. And some of these\nsmall landlords also find themselves trying to compete with wealthy rental\ncompanies.<\/p>\n\n\n\n

Let\u2019s break this down.<\/p>\n\n\n\n\n\n\n\n

Individual Buyers Face Competition From Rental Companies <\/strong><\/h2>\n\n\n\n

Today\u2019s buyers are coming into a seller\u2019s market. The bidding wars in competitive cities are, by now, well known. Corporate investors are in the mix, buying up single-household properties. Some corporations are buying up whole subdivisions<\/a>. Some are building houses, but they\u2019re meant for renters, not for buyers.<\/p>\n\n\n\n

In short, the corporate investors are buying up more homes than they are adding back into the market. This we learn from a survey done by the National Association of REALTORS\u00ae and reported in Arizona Business Magazine<\/a><\/em>. NAR went to the most competitive real estate markets and looked through the 2020 and 2021 deed records. The findings tell a story of companies depleting inventory in 31 of the 50 most popular cities for buyers, including Phoenix, Charlotte, Chicago, Miami and Tampa. When a large company buys up housing, the units can be out of the buyer\u2019s market for many years.<\/p>\n\n\n\n

NAR did find investors selling more than they bought in some\nareas. Those are the priciest areas, where it\u2019s hardest for the ordinary home\nshopper to buy. Like Dallas, Los Angeles, San Jose and San Francisco. <\/p>\n\n\n\n

 <\/em><\/strong>\u261b<\/em><\/strong> <\/em><\/strong>Housing market cooldown? Not so fast. Know the\nsix factors that are keeping the market hot.<\/em><\/a><\/em><\/strong><\/p>\n\n\n\n

Small Investors Are Stretched to Their Limits<\/strong><\/h2>\n\n\n\n
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After U.S. businesses shut down to follow the public health directives\nof March 2020, many employees were cut off from their normal sources of income.\nSome couldn\u2019t make their rent payments. Some renters were able to obtain\nprotection from evictions \u2014 protections issued by their states or by the\nCenters for Disease Control (CDC) \u2014 until the end of July 2021. <\/p>\n\n\n\n

Then came August 2021. Investor-owners were looking forward to resuming some semblance of back-to-normal payment schedules. As though on cue, the Covid-19 delta variant appeared. To protect the public health as infections continue to spread, the CDC issued a\u00a0new\u00a0order halting evictions<\/a> in\u00a0August 2021. In many jurisdictions, evictions will be put on hold<\/a> for the people least able to pay rent through the end of 2021.<\/p>\n\n\n\n

Across the country, many renters qualify for assistance<\/a> to pay their overdue rent and utility bills. This can help small landlords. Still, there are plenty of property owners who have waited more than a year for their rental income to resume. These small owner-investors are raiding their savings to pay mortgages, taxes and building maintenance costs. <\/p>\n\n\n\n

For many mom-and-pop investor-owners, the situation is\nuntenable. Now, some are forced to sell their buildings. And they might be\nselling to the big companies. <\/p>\n\n\n\n

The institutionalization of real estate investment is a\ngrowing trend.<\/p>\n\n\n\n

 <\/em><\/strong>\u261b<\/em><\/strong> The recent U.S. real estate surge has driven\ninvestor interest. Some investors are betting on publicly listed house flippers\nknown as iBuyers. <\/em><\/strong>Read more here on the rise of iBuying<\/em><\/a>.<\/em><\/strong><\/p>\n\n\n\n

Truth or Myth? Investors (and Renters) Bring\nDown Property Values<\/strong><\/h2>\n\n\n\n

Generally, owner-occupied properties are associated with\nstronger property values than rentals. Consider this. When a condo property\napplies for FHA lending pre-approval, the condo association must agree to\nfollow limits on how many absentee owners are allowed. The FHA want to see a\ncertain percentage of owner-occupied units. Additional FHA rules keep any one investor\nfrom buying more than 10% of the condos. <\/p>\n\n\n\n

These rules reflect the value, or the perceived value, of\nowner occupancy to a condo property. The FHA is lending a certain amount of\nmoney based on that market value. The assumption? Prospective buyers avoid\nheavily rented areas. Buyers value a sense of stability, and may believe that a\nhigh rental population undermines a community\u2019s stable character. It\u2019s an\nassumption that undervalues the commitment of renters \u2014 many of whom are\nengaged contributors to a community, with pride in their homes. <\/p>\n\n\n\n

That said, how engaged are their landlords? It all depends. It\u2019s\none thing to have mom-and-pop investor-owners who live nearby and work on local\nmatters, and even show up at homeowners\u2019 association meetings. It\u2019s another\nthing to have a distant, bureaucratic rental housing company as the landlord. <\/p>\n\n\n\n

 <\/em><\/strong>\u261b<\/em><\/strong> If you can\u2019t beat them, join them? Some\nretail investors are getting into the real estate investment act. See <\/em><\/strong>Real Estate Stocks and IPOs: Should You Invest<\/em><\/a>? <\/em><\/strong><\/p>\n\n\n\n

Separating Myth From Reality<\/strong><\/h2>\n\n\n\n

In reality, investor-owners are not all having the same effects\non today\u2019s real estate market. Some have more in common with their renters than\nthey have with large, public rental housing companies:<\/p>\n\n\n\n