America’s Largest Funds Start Flipping Houses
The largest American equity and hedge funds, and multi-million dollar investment firms are turning to flipping houses. Why are they switching up strategies? What will it mean for regular home buyers and renters, as well as smaller real estate investors?
In a dramatic turn of events, Bloomberg News revealrd that many of the big investment firms that scooped up thousands of distressed single-family homes, and dropped many millions of dollars on them, are now shedding and trading them. Essentially, they are getting into the house flipping game on a huge scale.
Mid-sized firms are trying to flip entire bulk portfolios of single-family homes worth tens of millions of dollars, while the largest are liquidating and turning to loan their money to smaller investors with their recouped capital. So, what does it mean for smaller and solo real estate investors? How will this impact regular home buyers, and those looking for rentals?
How Mass House Flipping Changes the American Housing Market
Some of the firms interviewed by Bloomberg say they will sell off as much as $40 million in acquired homes. Specifically, they are interested in existing homes in areas like San Francisco, which they have already helped pump up in price by over 50% in the last few years. They also highlight a key part of their strategy is not necessarily focused on flipping in bulk, but piece by piece, to retail home buyers who will pay premium prices for them.
Some firms will go on to seek new acquisitions in depressed markets with lower acquisition prices to flip again. Others are returning to commercial real estate and multifamily property investing. The largest funds are diversifying into buying new construction homes, and lending to smaller investors that want to buy rentals and hold them.
In the short term, this could flood the U.S. property market with new inventory, alleviating pent up demand. This could give buyers more homes to choose from, especially in hot areas like California. However, they will be listed at top of the market prices. Still, in comparison to where home prices are expected to go over the next seven years, these could still be considered great bargains, especially with interest rates so low. In fact, this new massive turnover of thousands of homes over the coming months will alone provide a substantial boost to home values and home prices.
This signals a great time to buy a home; maybe the best time to buy a home for the next decade.
Conversely, many properties which were pegged to be rentals could come out of circulation. This could effectively drive vacancy down to almost zero in hot markets like San Diego, California. This will make it harder for renters to find new digs, and could significantly drive up rental prices. On the downside, some urban markets could simply become unaffordable for much of the middle class, and lower income workers.
Flipping Houses Emerges as a Serious Real Estate Investment Strategy
Despite the millions made by real estate investors in the past, and even reality TV shows like Flip This House San Diego, some haters have doubted fixing and flipping houses as a serious investment strategy. The fact that the largest funds in the world, and some of the most respected financial minds are tapping into this strategy gives it a whole new level of respect and legitimacy, at least to outsiders. Buying and holding rental properties is great, and has its place, but flipping houses definitely has its advantages.
However, it doesn’t require tens of millions or billions of dollars to profit from flipping houses. In some cases, more money and scale can be counterproductive. All most need is a credit line, or access to transactional lenders to flip or wholesale endless houses for high returns.
Obviously, these big funds have learned that there are major advantages to flipping houses. Some have learned the hard way. So what are the benefits?
The Benefits of Flipping Houses
The advantages of wholesaling or flipping houses for real estate investors include:
- Fast profits
- Larger sums in income faster
- Lower risk
- No property management hassles
- No long term debt to manage
- Immunity to property value fluctuations
- Ability to add value quickly
- Not reliant on the whims of larger market makers
- No need to qualify for conventional bank loans
So how can more individuals and real estate investors get started in wholesaling or fixing and flipping houses? Education is a critical step that will help fast track success and progress, while reducing risk. Those that tap into proven systems and leverage coaching are likely to be those that will see the greatest success, fastest.