As a few of us US folks have been saying the US buyer is coming back, and 8% yields are whats driving it.
We still get to sneak a few out.. And I saw bidding services buying at the last Atlanta Auction on product that will end up going to the OZ marketing companies… However by and large the good ole days are behind us.
Now those of us who own are rooting these guys on to keep bidding up prices so kind of instant CG as it were.
So this dove tails right into WI's post about Vincent 888 deciding through the goodness of their hearts to up their quality..
Its really just a fact of the prices on the wholesale end have risen so they have to raise move up with them.
And in the end run the better the homes the better for all.. Just need to realize were your true Yields are going to settle out.
HI Jay
thanks for this interesting article.
In the article they have written rental returns of $1500 per month in Lithonia seems high, I wonder whether this is correct? What sort of property this is? As the highest I have achieved in a good subdivision in Lithonia is $1300 pa, 2500 sq ft home.
Are these companies holding out for the higher rents? Any thoughts on this?
Cheers WI
WI,
Just had a quick look at Lithonia rentals. There are executive style homes, really nice, large brick fronted homes on big lots that have asking prices of $1500 – $2800 month. Obviously these properties would demand much higher purchase prices than those we are targeting for cashflow.
Different calibre to the Belmont's and course side properties. I can only assume these guys have bought higher end thus aiming for a $1500+ rental.
Here is an example of what $2800 month in Lithonia looks like.
http://www.propertypanorama.com/slideshow/?id=923049
Jay, great article thanks for posting.
Karina Perez Ronderos
Select American Homes LLC
Phone +61 412 900 111 | http://www.selectamericanhomes.com
WI SAH,
Happy to share,, the real issue here is that this is the first time in American investing history that large ( what we call institutional money) has ever entered the SFR game.
As the article stated traditionally buying these types of properties for rentals would be Mum and Pop business, with of course investors from all over the world wanting to get there little piece of America, and the 100 or so turnkey providers nationwide that make a business out of it… The Turnkey guys do come and go… Many try it and many leave the space as the article says its very hard and difficult to manage these properties at any kind of scale and far more expensive than other types of Real Estate investments that the Hedge Funds would have typically invested in… However with Commercial in the tank and much of commercial beyond Salvage the Big players are moving into the space.. I mean Colony is HUGE multi billion dollar company out of SOCAL and they invest in a huge array of business… My business partner from Napa used Colony to help him take Berigner Wines public they raised 220 million for that transaction.
I was fortunate enough 6 or 7 years ago to have Breakfast with the Senior VP and was talking about the SFR space and his comment was too small of money and like herding cats…( No interest we could not deploy enough money to make it worth our while) So fast forward and here they are buying units by the hundreds… I have had long talks with Bryan Granum who runs Blackstones SFR group,,, same thing they would never have looked at this 3 years ago.
I think they are a little late.. Because despite what you may see written they really are trying for 12% cap.. but will settle for 6 to 8% net… I have no doubt they hit some 12 caps but the portfolio with the mass they are buying will settle into that 6 to 8 and if it performs at that they will be happy….
So based on this activity in Atlanta, Pheniox, SOCAL, NorCAL, some of Eastern FLorida, this is where they are concentrating their buying activities…
In my mind they will drive prices right up to the point that unless you have mass like they do most of the single investors buying will be more of local in nature that want to own rentals long term.. those looking for returns that are much higher than Historical norms will need to choose very wisely.
This is not to say deals still can't be made in these markets they certainly can, its just going to be much harder and the prices are defiantly going to and have risen.
At the end of the day all of us that were buying for the last 2 years and have our portfolios set really see this is a great thing for us… I have no doubt I could bundle my Atlanta homes right now and sell to Colony,, I mean all my TWH homes are completely rehabbed 100% occupied and are generating 9 caps for my investors without my investors ever having to do anything but pick a home off of the net and wire me funds. They get their monthly interest check same day every month and exact same amount… For the Hedge fund to come in and by my block of 50 homes that are all set up I am thinking they will pay a premium as opposed to having to acquire these one at a time rehab get tenants etc..
TWH exits at a 8 cap and my investors yield will be close to 20% for them NET NET and of course in our equity share model we will do quite well also… So for me its a double edge sword.. Would I like to continue in Atlanta yes and I will however at my 2 to 4 houses I sneak out a month, those 2 to 4 though are smokin deals and we work very hard for them… Could I go buy 20 to 50 yes but I would be competing price wise with the Hedge funds and that would take all the fun out of it.
so thats my assessment of Atlanta today. And any market hedge funds are penetrating.
As for WI's questions about rent.. I believe that the article is using a little hyperbole and in talking with buddies of mine in the bizz the house they show in the article is really a 950 to 1100 rent… 1500 plus in Atlanta is a much better house and even for us in the bizz purchase price and rehab would have us in a house that rents that high more in the 150k range and certainly by the time it got through the gauntlet of, Bidding services, 1st gen, wholesaler, OZ marketing company the price would be up there. Although set this type up on a 6 to 8 Cap if you can get that high and they probably have the best CG potential for sure.
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