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Large Investors Not Cashing Out of Buy-to-Rent Bet — Yet – Belief in more equity to come…

We recently posted an article regarding home value estimates over the next 5 years.  It seems the big players in the investment market also believe home values will continue to rise.

RealtyTrac this week analyzed nearly 600,000 purchases made by investors between January 2011 and September 2013 and found that the vast majority of large institutional buyers are sticking to their original buy-to-rent game plan and not cashing out despite substantial gains in the value of properties in their portfolios.

The 600,000 purchases were those made by individuals or institutions that purchased at least three properties in a calendar year and for which price and estimated market value data was available. So these do not represent 100 percent of all investor purchases made during this time, but they certainly represent a big enough sample size to shed light on some important trends.

First, smaller and mid-tier investors have sold off a much larger portion of the properties they have acquired since 2011. Entities purchasing between 10 and 99 properties during that time period have subsequently disposed of 29 percent of those properties as of September 2013. Entities purchasing anywhere from 100 to 499 properties during that time period have subsequently disposed of 19 percent of those properties.

The story is different for the larger investors purchasing more than 500 properties during that time period. Entities in that category have purchased more than 39,000 properties but only re-sold about 2,000, representing 5 percent of their original purchases.

Keep in mind that often multiple entities purchasing properties all tie back to the same ultimate source. For instance, entities with a name beginning with “THR” and “IH” have been linked back to Blackstone. Entities with that in the name represent more than 18,000 of the 39,000 purchases in the above 500 category, and many more instances of entities with those two prefixes occur in the smaller categories as well.

Among those 18,000 purchases in the top tier category that are likely backed by Blackstone, only 79 have subsequently been re-sold, representing 0.43 percent.

Using a similar methodology, we linked about 6,500 of the top tier purchasers to American Homes 4 Rent, another company that has made waves in the Buy-to-Rent world. But of these 6,500 purchases, only 56 have subsequently been re-sold, again less than 1 percent.

Similarly sub 1 percent dispostions were found on some of the other major hitters in the buy-to-rent market: Colony Capital (Colfin), FREO andStarwood Property Trusts.

This low disposition rate comes despite substantial gains in home values on homes in these investor portfolios. Overall, among properties purchased by entities in the 500-plus category, the overall estimated market value has risen more than $1 billion, or 18 percent, since they were purchased. That’s a solid return despite being a lower rate of appreciation than for the properties purchased by the smaller and mid-tier investors, which saw estimated rates of appreciation of 22 percent and 24 percent respectively on their combined portfolios.

While some of the smaller and mid-tier investors are much likely to be tempted by these rapid rates of appreciation and happily cash out to move on to another money-making venture — especially considering that the easiest piece of the buy-to-rent formula is the acquisition, while the most challenging piece is the management of the property — the bigger players appear at least at this point to be fully committed to seeing formula through to its conclusion.

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