Just this week, the Tampa Bay Times published an article illustrating one major factor that is contributing to the sudden increase in Real Estate prices.
Bad credit, ravaged savings and evolving attitudes are driving more Americans to rent houses, and big-money investors are waging war to win their business. Few are mightier than the Blackstone Group, which dropped $150 million to buy 1,000 Tampa Bay homes — in just the last six months.
This “evolving attitude” the article speaks of is referring to the growing rejection of owning property by many people. In some cases this makes sense – especially when it comes to tool rental. But one thing these people seem to be missing is the fact that ownership of private property is historically the cornerstone of building permanent, multi-generational wealth.
The old adage of “buy low and sell high” apparently is not being taught in popular curriculum these days. It’s painful to see so many people suffering financially simply because they got this basic tenet in reverse. These are people who bought at the peak of a housing bubble – when prices were at the extreme high, and now are paying high rents while home values are at extreme lows.
Wise investors who can sniff out an opportunity to get paid know better. Housing prices in Tampa have been “bottomed out” for the last 3 years. This has been the ideal time to acquire as many properties as possible, as fast as possible.
But with home prices in cities such as Tampa nearly half off their peak, legendary investor Warren Buffett seemed to fire a starter pistol last February when he said he would buy “a couple hundred thousand” homes nationwide.
This is very similar to what we’ve been doing for ourselves as well as our clients. Using private lenders to finance these deals helps investors utilize leverage to buy more properties even faster, especially if investment capital is limited. Conventional banks are not able to finance these lower-priced, distressed properties – but that’s an entire subject in itself.
Just as Mr. Buffet stated above, we’re not the only one’s using this strategy:
In the last year, an odd assortment of private-equity giants, funding arms and financiers have descended on Tampa Bay, according to a Tampa Bay Times analysis of property records, court filings and foreclosure auctions. The bigger players include:
- Blackstone subsidiary Invitation Homes
- Silver Bay Realty Trust
- American Homes 4 Rent
- Fundamental REO
- American Home Real Estate Investment Trust in Atlanta
As a result of having all of these “deep pockets” taking a massive bite out of Tampa’s available inventory in a very short period of time, we’ve seen an upward spike in Real Estate prices. This, in combination with next week’s announcement of Hillsborough County offering up to $25,000 of down payment assistance for first time home buyers with household incomes lower than $60,000 a year, can drive prices even higher. No matter what, a strong rental market will remain here in Tampa for the foreseeable future.
A swelling “rentership society” has weakened the stigma that renters are reckless money-wasters, college students or underpaid. In Tampa Bay, two-thirds of renters are older than 35, and more than half are families, census data show. And renters come from every class; “luxury rental specialists,” for example, cater to the South Tampa socialite crowd.
Families who suffered through foreclosure but feel they have outgrown apartments still want a home of their own. In 2006, Tampa Bay renters signed about 2,000 leases for single-family homes and condos, multiple-listing service data show. Last year, that stack grew past 16,000.
Such a high demand on investment rental property is putting a strain on some local investors in regard to securing new inventory. Some of Tampa’s local wholesalers are left out in the cold, standing in the shadow of these investment giants.
“We haven’t put an offer on anything where there isn’t at least 20 people bidding against us,” said Matt Andrews, who owns Tampa home wholesaler ZMA Investments. “Everyone’s trying to grab everything they can.”
As the article continues, it goes on to say, “The most coveted homes are concrete-block three-bedroom-two-baths, priced around $150,000 and newly built in suburbia.” Here is the redeeming factor in this equation. The houses we deal with are currently priced between $30,000 and $60,000 and are within the city limits, so we’re not competing with these big companies. Since many wholesalers and Realtors are scrambling to service these high rollers, our market is left with little competition so there are plenty of great deals out here for us and our clients.
The dicey buys, the quick fixes, the brawls for best profits: Hasn’t Tampa Bay played this game before? Recent home-price jumps are less a sign of recovery, some economists worry, and more a trap for a second crash.
Of course there will be a second crash, we’re approaching the beginning of the next housing bubble. Prices will go up, and when they can’t get any higher, they will come back down – this is what happens. Remember that old adage mentioned above, “Buy low and sell high.” With that in mind, the biggest mistake an investor can make is to buy a property that cannot support itself and does not provide any cashflow – with the expectation of the price going up in order to sell for a profit. If the property produces nice cashflow on its own, a smart investor can play the waiting game until the market is ripe and then sell at the highest point, during the peak of the frenzy. And if it doesn’t sell, or if they decide to keep it, they still have a valuable asset that produces cash flow each and every month.
Of course there will be a second crash, we’re approaching the beginning of the next housing bubble. Prices will go up, and when they can’t get any higher, they will come back down – this is what happens. Remember that old adage mentioned above, “Buy low and sell high.” With that in mind, the biggest mistake an investor can make is to buy a property that cannot support itself and does not provide any cashflow – with the expectation of the price going up in order to sell for a profit. If the property produces nice cashflow on its own, a smart investor can play the waiting game until the market is ripe and then sell at the highest point, during the peak of the frenzy. And if it doesn’t sell, or if they decide to keep it, they still have a valuable asset that produces cash flow each and every month.
Investors keep their financial details private and won’t say how many of the homes they’ve rented. But local landlords predicted their monthly rents might be too high for tenants to stomach. About 90 percent of Invitation Homes’ local online listings are more expensive than the average Tampa Bay rental home, at $1,200 a month. Their priciest rentals, including a five-bedroom FishHawk estate, would cost $36,000 a year.
“A lot of people have entered the market with incorrect expectations, expecting too deep of discounts, or being overly optimistic for what it will rent for,” said Steve Oehlerking, president of Rent Solutions, a Tampa leasing and management firm. “Those deals out there . . . are drying up.”
Which is why we haven’t deviated from what has given us a successful track record. We stay focused on the lower-income areas, the lower priced houses – many of which are renting between $850 and $1,100 per month – providing our clients some very handsome return rates. Yes, there has been a price increase over the last 8 months, but these properties are still priced low enough to make them very attractive. With this recent wave of appreciation we’re experiencing, it’s just adding an extra benefit to the investors. Now they have even more ways to make money by pulling some new equity out of their properties with a refinance to expand their portfolio, or a lease-option to an existing tenant. Either way, there is absolutely no shortage of houses in our market and plenty of opportunities to earn some decent income.
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