“Every adversity, every failure, every heartbreak, carries with it the seed of an equal or greater benefit.”
(Napolean Hill)
In recent news, President Trump is working on banning institutional
homebuyers (firms owning 1,000 or more residential homes) from buying more
homes. These institutional buyers (IB’s),
like Progress Residential, Invitation Homes, American Homes 4 Rent, and others,
own about 3% of the homes in America.
The Trump administration rationale is that IB’s with unlimited
checkbooks are outbidding families for the same homes which makes achieving the
American dream of homeownership harder for regular citizens. IB’s are typically vultures in the market eagerly
trying to buy affordable homes (around $200-400K in Charlotte), so there is
truth in that. After they buy them, they
usually fix them up (laminate wood flooring, new paint, new stainless-steel
appliances, etc.) and make them higher-priced rental homes. Then instead of a family owning a home, the
family is paying high rent to an IB.
The picture painted above of an IB is not a glamorous one! IB’s would tell the story a little differently
than the Trump administration. They
would say that they provide liquidity for the home sales market as a motivated
buyer; this helps American families move on to buy other houses or cash out on
their real estate investments. They
would say they fix up houses that are in disrepair and introduce new, needed
rental homes to the market for American families to live in. They are an instrumental partner in keeping
American housing stock current and from neighborhoods incurring decay from dilapidated
and abandoned homes.
As someone who regularly sells homes in this price range, I
like dealing with the IB’s. They always pay
cash, don’t quibble with repairs, and close on time. They are in the business of accumulating
homes that fit their investment profile and they are good at it. The agents who work for them are cordial and non-emotional;
they don’t hold a grudge when we reject their offer initially and they are
still willing to make a deal months later if we call them out of the blue. Their offers are not usually outlandishly low;
some are actually above what we expected to get from a non-IB buyer. They are a nice option for sellers to have!
In short, I think IB’s are both bad and good. But I don’t make the rules! I just try to work my best within them for
our landlords,
their rental homes, and the tenants.
If IB’s are banned, there will be fewer rental homes
available. And in Charlotte at least, we
need more rental homes for the influx of 157 people a day that are moving
into our metro-area. Where will they
come from? The Trump administration says
they expect the void to be filled by Mom & Pop investors (aka you and me).
So here is the opportunity.
I saw a statistic the other day that said that 51.5% of all US mortgages
are below 4%. I also saw (and have experienced)
that the home sales market has been relatively stagnant for the past 3
years. Many people believe the past low
mortgage rates are causing the slow market.
This has been labeled as the “lock-in effect” where sellers don’t want
to lose their low interest rate to buy a house with a much higher interest rate. Their great past interest rate is “locking”
them into their existing house. That
makes sense to me.
Reviewing the information below:
IB’s being banned or curtailed would create fewer rental
homes (less supply)
Strong rental home demand continues as experts say that not
enough homes have been built and there is undersupply (strong demand)
Previously bought homes with sub-4% mortgages can cashflow
better than buying investment homes now at higher interest rates (lower monthly
cost)
Buying a new home in a buyer’s market is favorable (lower
prices, more negotiation room, & less competition)
Real estate is considered a great investment that adds portfolio
diversity while hedging against inflation
I would conclude (drumroll please), it might be a great time
for smart investors to rent out their “locked-in” rate house and buy a new one
to live in! There are families ready to
rent them.
As opposed to an “Accidental Landlord” who is forced to turn
a non-selling home into a rental, a “Landlord on Purpose” could be a profitable
way to ride today’s market trends.
Happy Landlording!
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