Investors Could be Overpaying for Homes

IRVINE, CA-Local investors may have the advantage of large institutional home buyers for a variety of reasons, Daren Blomquist, VP of RealtyTrac, tells GlobeSt.com. Having “boots on the ground” and intimate knowledge of the market gives local buyers better perspective on how much homes are actually worth.

Blomquist says the trend of large institutional buyers purchasing single-family homes for rental “is pushing out the smaller, mom-and-pop investor—as well as owner/occupant buyers—because these institutional investors are typically willing to operate on thinner margins and buy at smaller discounts than those mom-and-pop investors and owner/occupant buyers. The local mom-and-pop investors still have the advantage when it comes to knowing the market and the true value of homes that are being purchased. For this reason, I think in some cases the institutional investors are probably overpaying for homes.”

Reggie Brown, CEO of All Property Management in San Diego, tells GlobeSt.com that some of the larger institutional investors are willing to pay a slight premium for the kinds of properties that have good long-term investment characteristics: nearly new homes and those that don't require a lot of renovation. “This would be the three-bedroom, two-bath typical home that makes a good rental. And the price increase needed to happen in order to solidify the housing market. Nobody was coming in en masse and trying to shore up the prices of these homes. The smaller investors may be crowded out, but hopefully this is creating a stronger foundation for the housing market to turn around so you don't have distressed homes creating a lot of dislocations.”

Brown adds that many smaller would-be home buyers aren't able to get loans because they're not able to get comps. “On the other hand, we've been hearing that flippers are back. If flippers are back, then clearly there may be excess profits there that are being generated by somebody.”

As GlobeSt.com reported earlier today, the movement of institutional investors into the single-family rental market has raised the issue of property management for these homes. Experts agree that managing single-family properties is very different from managing their multifamily counterparts, which is where local agents and brokers have created a niche for themselves.

Alec Bernstein, owner of LRS Realty & Management Inc. in Los Angeles, tells GlobeSt.com that local brokers and property managers do not have to market themselves to these institutions—the large owners will seek them out. “The institutional people sought us out. They have people going around the country literally interviewing local companies.” He does recommend that local brokers and property managers highlight their strengths on their websites so that the larger institutional buyers can find them.