Of all the fancy indicators demonstrating a bubble in home prices, nothing was as telling as shows like "Flip This House" or "Flip That House.” During the time this programming was first presented, I was a consultant thinking that this programming was the equivalent of an "end is near" sign for residential prices. When you have a cab driver or your hairstylist (I’ve never actually had a hairstylist but you may) or the kid across the street that mows your lawn tells you to buy another house, maybe things are oversaturated. Same for the daytraders which sprung up everywhere during the tech bubble with documentaries about Mountain Dew slugging twenty somethings so glued to the computer screen they barely had time to load a pop tart in the toaster. I could hardly consider any of these folks “investors.”
 

It’s different today. While “flippers” have been back in the news, it’s not the same breed of overleveraged individual participating in this market. The people who buy at trustee sales or attempt to purchase homes in bulk are usually well capitalized firms that perform deep due diligence. They are the heroes in today’s market, taking the risk of buying a home that may have less than obvious issues and making them move-in ready. That’s a real value added proposition as many people, especially first-time buyers, cannot raise the cash to buy one of these homes, much less pay thousands to fix it up. It’s much easier just to roll it into the mortgage loan. Without the investor, it would merely be another vacant home withering away.

In addition to making homes available for sale, investors are purchasing homes for cash flow. Often these homes are purchased from a bank, are fixed up and then rented. You can buy them with a lease in place and we’re seeing some respectable cap rates, even above 10%. br />  

In the exhibit below, we note that there are a few hundred more listed single family homes in March of this year versus March of last year with tenants in place. While homeownership for owner-occupied families is great, it’s also important to understand that a well functioning rental market is good too. This is real organic use of resources, unlike the bubble years where investors couldn’t care less if it was occupied as long as it appreciated. The key is to have occupied homes.


Source: Mlxchange.