Solano Real Estate Scene: Hedge fund landlords big players in market
I was sipping my morning coffee back in February 2012 watching CNBC, when Warren Buffett, the Oracle of Omaha, told the interviewer, Becky Quick, that he would buy a couple hundred thousand single-family homes if it were practical to do so. The practicality challenges he was talking about were the systems required to purchase and then manage the single-family homes.
We witnessed massive numbers of flippers purchase foreclosed properties locally, fix them up and then sell them for profits to buyers to primarily owner occupy as their homes after the crash.
As I have stated in previous columns, there were more foreclosures and short sales in Solano County between 2009 and 2014 than the previous 50 years combined. There was Blue Mountain dominating the flipping business and a bunch of smaller mom-and-pop flippers buying and selling here, creating inventory for Realtors to sell and buyers to buy. Homes that didn’t sell at the courthouse auctions for cash to investors were later listed for sale by foreclosing lenders with mostly local Realtors, creating inventory to sell and buyers to buy.
There was something else quietly going on that I must admit I had no idea was as big as it was and is.
Investors across the world, especially Wall Street but even as far as China, heard Buffett and moved very quickly and purchased hundreds of thousands of single-family homes in our neighborhoods. They paid cash for houses at auctions one at a time and made bulk purchases from lenders that had tons of REO (bank-owned homes). Some banks and lenders decided to sell huge numbers of houses in bulk to these hedge fund companies to just get the houses off the books and avoid the hassle of listing them with agents and dealing with evictions.
These shrewd investors could write a check for $20 million and buy 200 or 300 California houses at a time. Some of the homes in the pool were huge “home runs,” purchased at 60 to 70 percent below market value and vacant, and some were “nightmares,” dilapidated messes with tenant problems. The bottom line is some billionaires and hedge funds bought hundreds of thousands of homes at the bottom of the market from 2010 to 2015.
Unlike flippers, they don’t seem to be selling the homes now even though they have doubled their money. They are now the largest landlords in many markets in this country and especially in middle-class ZIP codes like Sacramento and Solano County, which is a brand new phenomenon in America.
Previously, institutional investors and REITs focused on commercial real estate like malls, office buildings and huge apartment complexes, leaving the local one- to four-unit residential rental housing for upper-middle-class mom-and-pop investors like some of my clients and friends. Invitation Homes, a subsidiary of Blackstone, for example, is now the largest owner of single-family homes nationwide. They own 13,000 single-family homes in California.
I am not sure what all this means, but I am pretty sure I don’t like it.
