New insight into the moves of giant hedge funds and private equity firms reveals just how massive their plans are for controlling a larger portion of the U.S. property market. After investing billions into the American housing market and buying up thousands of single-family homes, the best funded firms have announced they are moving into an even larger, and more significant ‘consolidation’ phase. Now they plan to scoop up all of the mid-sized players that have been dabbling in the market, many of whom they financed.
While other countries have seen the nationalization of real estate, this is a private gig. While the best funded are now diversifying into many areas of the U.S. property market and mortgage markets, the most significant play is in taking over large sections of the single-family housing market, and converting them into rentals.
They also have the monetary weight, and media influence to move markets in their favor in the future. So what does it all mean for smaller real estate investors, regular home buyers and renters?
Making it Harder to Buy Homes
As more homes are taken out of the circuit, there are simply fewer homes becoming available to buy. While in the past, Americans have moved every five years, constantly cycling product, these homes will likely be held as rentals for many years. Lack of inventory, and more competition over what is left means home prices will be bid up even further. This is going to make it more expensive, and challenging ahead, though will certainly benefit existing homeowners that will see home values and equity swelling at a brisk and substantial pace.
Making it Harder to Rent
This trend in the consolidation of the American residential property market is also making it far harder to rent. The only way that these new gigantic landlords see that they can manage and lease this massive portfolio of income properties at this scale is by automating, and systemizing it. These are great concepts for most businesses and products, but presents some issues when dealing with the fate of the lives of millions of Americans and their families.
These firms could outsource property management to smaller local firms that might do a better job, but they don’t appear to be doing it. Instead, the result in centralized, long distance management, with out of touch decision making. The fallout is being seen in dramatic tenant turnover rates, and high vacancies, even while some markets have virtually no empty units. Yet, even where vacancies are high, these companies are being brutally tough with tenant approvals, are managing by strict modeling and scoring systems which may be unrealistic, and are driving rental prices up significantly.
The result is making it very difficult for the average renter to find housing. In fact, in many cases, it may be far easier to qualify for a mortgage than to rent an apartment or home, and cost less out of pocket.
Millions have been invested in media and PR to convince an entire generation it is better to live life as a renter. Some fell for it; missing great opportunities to buy homes at great discounts, low interest rates, and lower payments than their rent. If they don’t break free, they will be held ransom by corporate landlords that are constantly raising rents. Meanwhile, those that did buy will be growing wealth in their homes with fixed payments, and will have plenty of disposable income.
Those that delay might be priced out of buying a home for the rest of their lives. That makes the time to buy now, even if that means working a little harder to pool the funds together, and making some sacrifices.
Changing How People Buy Homes
While mortgage credit has eased, 100% financing home loan programs are making a comeback. Unfortunately, not everyone can qualify. There are many more housing grants and government funded initiatives which can help hopeful buyers find down payments, closing costs and even the money to fix up homes. Others may partner with organizations like Habitat for Humanity to help build or remodel their own affordable homes. Many more may go back to the practice of pooling money form family or communities to build more affordable housing and bridges to homeownership.
More may continue to live in multigenerational housing situations for longer. On the surface, this may not sound great, even a throwback to generations past. But it may not be a bad thing for the individual and communities that foster stronger bonds and sustainable housing practices. In fact, it could be far more beneficial on many fronts.
However, there is no question that there will be major shifts in migration ahead. Soaring housing costs will force many to move further out to the burbs and to develop more rural communities in order to find affordable housing. Thankfully, with remote working and the web, these movers might end up being some of the fastest growing middle class members in terms of net worth and disposable income in the near future. A great example of this in Southern California would be moving inland to smaller communities where prices are cheaper, yet residents can still enjoy all the perks of living near bigger cities and the coast, like in San Diego.
For Real Estate Investors
For smaller and independent real estate investors, this all actually create more opportunity. There is opportunity to differentiate and get ahead of the big funds, and enjoy more profitability. This can be achieved with a personal touch, working locally, and an attitude of serving consumers and creating win-win opportunities that will develop great relationships, and loyalty.