INVESTMENT STRATEGY
HOUSING INVENTORY
SPONSORED CONTENT
IsWall Street Buying Up Main Street? YOU’LL NEED TO THINK BACK TO YOUR INTRODUCTORY ECONOMICS CLASS TO DISCOVER THE REAL REASON HOUSING INVENTORY IS LOW.
by Zach Lemaster
here has been a lot of talk in the last few years (and increas-
the interest they pay on their loans is much lower than you would pay; it’s about half the interest rates available to the average individual borrower. If their interest rates are lower, then these companies can offer higher purchase prices on invest- ment properties because they will roll the higher purchase price into the mortgage. In short, a higher purchase price with a lower interest rate can have the same monthly payment as a lower purchase price with a higher interest rate. Because of this, larger investors can beat out mom-and-pop investors with their offers. A seller doesn’t care what your mortgage’s interest rate will be—they just want the most money they can get for their property now! Their deep pockets also mean institutional investors can make offers in cash, whereas a tradi- tional buyer will need to finance the property. Financing takes time to be underwritten and approved, so institutions have time on their side when it comes to making offers and closing quickly—and sellers tend to really like faster closings. LARGE-SCALE ECONOMIES AND PORTFOLIOS Institutional investors are running large operations and have devel- oped systems to make their large
portfolios run efficiently. They can save not only on human capital but also in other areas because they get bulk discounts for renovations and materials. So, is it true that institutional investors are taking over real estate with all these advantages? Let’s look at the total number of homes in the U.S. that investors own. According to Redfin.com, investors own just under 16% of the current housing stock in the U.S. How much of that 16% is owned and controlled by institutional inves- tors versus mom-and-pop investors? To find out, take a look at a company called Invitation Homes, which is owned by BlackRock. It is the largest rental property company in the U.S. Invitation Homes owns half a percent of all the single-family homes for rent in the U.S. So, if Invitation Homes’ market share is only half a percent of all single-family rental homes and they are the biggest institutional investor, then it appears smaller investors are making up a vast majority of the investing being done in the U.S. ARE FUNDAMENTALSDRIVING UPHOUSINGPRICES? If institutional investors aren’t driving prices up with their purchas- ing power and economies of scale,
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ingly since the pandemic) that large institutions such as BlackRock and Zillow are buying up the housing stock in the United States. These purchases are driving prices up and making homeownership unafford- able for the regular Jack and Jill. In real estate investing, being able to afford homes for rentals is para- mount. It is also important to not only be able to purchase properties but also to ensure you are maintaining a solid investment portfolio. Equity, appreciation, cash flow, and tenant retention are all key factors to building and sustaining your financial future. So, let’s explore whether insti- tutional investors are negatively impacting housing availability and affordability with major purchases. If so, what can you do about it? Further, what advantages do institu- tional investors have versus you? DEEP POCKETS, COMPANY SIZE, AND TRACK RECORDS Institutional investors have really deep pockets. Investors and finan - cial institutions are willing to lend to them because of their size and track records. Their ability to repay is also much greater than yours. Additionally, large institutions can borrow money very cheaply, meaning
64 | think realty magazine :: may – june 2022
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