Everyone is the owner – small investors exploit real estate outside the country

Jack Cronin found homes in the San Francisco area too expensive or too far from downtown to buy when he lived there in 2020. The technical worker still wanted a piece of the housing market’s warmth of his life, so he started looking further.

Last year, the 28-year-old used a website called Roofstock, which provides listings and data for interested rental property investors, to buy a three-bedroom house outside Jackson, Mississippi for $265,000. Cronin, who now lives in New York City, has never visited Jackson or met the tenants of his home, where the landscape is filled with trees and crab myrtles. It’s enough to know that a management company collects $2,300 a month in rent for him.

“So far, so good,” he said.

Jack Cronin in 2020.

picture:
Michaela Monaghan

Mr. Cronin is part of a new movement of laptop owners, where individual investors buy homes, often in other states, to rent out. Many of them are well-paid professionals who are considering owning a rental investment along with stock or bond funds. New technologies that simplify the process and enable online home buying have fueled traffic growth.

The data services help potential owners accurately select neighborhoods, providing them with detailed reports on sales prices, crime rates and local schools. It connects online real estate marketplaces, such as Roofstock and Appreciate, with local finance or managers who can handle property maintenance and leasing. Content publishers and web forums like BiggerPockets offer investment strategies and advice on where to buy.

“It can all be done online,” said real estate consultant John Burns in Irvine, Calif. That was the game-changing factor.”

Home purchases by large and small investors jumped to record levels during the pandemic, reaching 28% of total single-family home sales in February 2022, up from 17% during the same month in 2019, according to housing data firm CoreLogic. . Cronin or other small institutions with 10 or fewer homes account for about half of all investor purchases.

A separate measure of investor purchases by Atom Data Solutions, compiled for the Wall Street Journal, shows that the esteem of small out-of-state investors has also grown. Members of this group, who bought between 2 and 10 homes annually, bought 2.1% of all US homes sold in the second quarter of 2022, up from 1.5% during the same quarter in 2019. Only one home purchase is excluded from the norm. outside holiday homes.

Individual investors have been attracted to the housing market by strong house price growth, lower mortgage rates and higher rents. Home sales have slowed in recent months, due to higher borrowing costs, limited supply and higher prices. Some investors have pulled out of the market, according to real estate agents and some market reports.

Owning rental properties in any market carries risks. Unexpected repairs, tenants who stop paying rent and property management fees, often 8% to 10% of income, can all eat into potential profits. Some investors who finance their purchases with variable interest rates may also face higher payments if interest rates continue to rise.

But rents continue to climb to new heights most everywhere in the United States, making business profitable even as interest rates rise.

As a result, even small housing markets are becoming less local. When area residents bid on homes in Jackson or Jacksonville, Florida, they face national competition from professional real estate firms and small investors at a time when the inventory of homes for sale is already low. This has made it more difficult for local youth to begin a financial process through home ownership, exacerbating the rising cost of housing.

Melissa Spears and her boyfriend Michael Cruz live in the Jackson area and want to buy a house together. They began their search last year in suburban Madison County, where many homes were built this century, have large lawns and are close to schools and good shopping.

Melissa Spears and Michael Cruz.

picture:
Melissa Spears

Ms. Spears, who works in retail, and Mr. Cruz, who works at a local bank branch, wants to buy a home for less than $300,000.They said they’ve been kicked out of their homes by faster offers or all-cash buyers. Ms Spears said she was not interested in renting a house as an alternative.

“Renting to us is a total waste of our money,” she said.

Co-founder and CEO Gary Beasley said many of Roofstock’s customers are offshore tech workers who make $200,000 to $300,000 annually. These buyers will need about $300,000 in down payments to purchase residential properties in their communities. For a minimum of $40,000, they can buy a home in a low-cost market and collect rent that brings a steady profit.

“What we see is a kind of separation of people between where they live and where they own,” said Mr. Beasley said.

Southern metros with large numbers of low- and middle-income renters, these destinations have been particularly popular for cashing in on coastal investors. Small out-of-state investors accounted for 4.24% of all sales in Raleigh, North Carolina, 5.26% of sales in Atlanta, and 8.61% of sales in Memphis in the first half of this year, according to Atom – ver above the national sales rate.

The share of home purchases by small investors from outside the country

-1.6%. marks.

From the first quarter of 2019

-1.6%. marks.

From the first quarter of 2019

-1.6%. marks.

From the first quarter of 2019

-1.6%. marks.

From the first quarter of 2019

-1.6%. marks.

From the first quarter of 2019

Crowdfunding platforms have given small out-of-state investors a way to make partial purchases in single-family homes as well. One of the most recent, arrived, registered 12,000 people who invested in 150 rental homes last year, with more than 100,000 others applying to make future investments through the company. For one starter home in Clarksville, Tenn., 535 investors contributed to the purchase, some paying as little as $100.

Investors in lower cost southern cities can get higher rents compared to sales prices than many other places. The metro areas of Memphis and Birmingham, Alabama, had the highest rent-to-sale prices in the United States in December 2020, according to an analysis by Roofstock. At the time, the monthly mortgage payment for an average-priced home in Birmingham was just $599, while the average monthly rent was $1,166, nearly double that amount.

These kinds of figures caught Mr Cronin’s attention, and he initially wanted to invest in Birmingham. He said it was overbid by more than 10 times, presumably some investors like him.

Cronin’s home, right, in Madison, Me.

Jackson hasn’t attracted as many investors as some of the other Sunbelt cities, but its cheaper homes have seen more investor interest lately, which has likely helped boost home values. Across the greater Jackson area, home prices rose 29% between November 2019 and November 2020, according to the real estate brokerage.

Redfin corp.

Prices for the capital city of Mississippi are still lower than those of Birmingham, and it also has a large number of tenants with attractive rent-to-sale ratios. Mr Cronin said he would only need to raise the rent modestly to get his desired annual return of up to 15% over time.

Home prices around Jackson have grown at a slower pace recently than in 2020, according to Redfin, which could mean some investors will start shopping in other cities, or even sell their properties to reinvest in markets with stronger price growth. This increases the potential for more buying opportunities for local home buyers, although it can also lead to unwelcome fluctuations in the market.

Local real estate agents in Jackson are betting that investors will keep coming. Ryan Porter, owner of real estate agency NextHome Realty Experience, said he has sold rental homes in the Jackson area to investor buyers from California, Nevada, Colorado, Ohio, New York and Washington, DC in recent years. Home prices have low taxes and unrestricted rent laws. “They’d rather do it near them, but they can’t,” said Mr. Porter said.

The share of home purchases by small investors from outside the country

+2.8%. marks.

From the first quarter of 2019

+2.8%.

marks. Of

First quarter 2019

+2.8%.

marks. Of

First quarter 2019

+2.8%. marks.

From the first quarter of 2019

+2.8%. marks.

From the first quarter of 2019

Evernest, another non-real estate rental property management company, circulated a white paper promoting “landlords” in Mississippi, where there are no limits on how much you can ask a tenant to pay for a security deposit and where evictions are faster as It was in other parts of the country.

Los Angeles developer Sree Partha bought a three-bedroom home in the Brandon suburb of Jackson for $212,000 cash last year. He quickly rented it for $1,855 a month. When his first tenant decided to leave at the end of their lease this spring, Mr. Partha told his local property manager to raise the rent by more than 37% to $2,550.

“When he came out to return the rent, there was much more demand,” said Mr. Partha said. He had no problem finding a new tenant.

It was not such easy money. He bought another house that ended up needing extensive enough repairs that Mr. Partha had to pay to move his tenant while the work was done.

City Councilman Aaron Banks, who represents parts of South Jackson, wants to make things more difficult for foreign investors. He proposed an ordinance that would require all landlords to register with the city, pay fees and perform home inspections in order to operate. His proposal also sets standards for property maintenance and would prevent landlords from forcing tenants to open utility bills through third parties, a practice Mr. Banks said that has necessitated additional charges for some tenants.

Mr. Banks said increased investor activity and rising rents are making homeownership less feasible for low-income people in his area. “It keeps people in a circle, a repeating cycle of renters throughout their lives,” he said. “You’re paying $1,700 a month, and it’s probably hard for you to make payments on time to get your balance where it needs to be.”

Concerned about an increase in investor purchases, Liz Priester bought, renovated and sold homes in her neighborhood to their resident owners.

Proponents say investors offer renters access to desirable and safe neighborhoods in good school districts where they can’t afford to buy.

Kevin Ortner, chief executive officer of the rental property and online marketplace, said the new wave of small, out-of-state investors could push prices up faster. But he said pre-existing affordability problems and a housing shortage have already forced people out of the sales market, making them more likely to need to rent.

“As long as these people are out of state … they make a great place for the resident to live, they also do a service to that community,” he said.

Some homeowner associations have become concerned about the increase in investor purchases in their neighborhoods and have taken steps to limit them. In Jackson, investors own more than 20% of homes in the Fondren North neighborhood, according to the Homeowners Association. Residents are now buying homes in the neighborhood before out-of-state rental investors can.

Liz Prester, president of the Fondren Renaissance Foundation’s Neighborhood Conservation Group, said she has bought, renovated and sold nine nearby homes to their owners so far, most of them for less than $200,000.

“We want to bring some first-time homeowners into our community, like we were 30 years ago,” she said.

write after Will Parker on [email protected] and Nicole Friedman on [email protected]

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