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According to a recent report, data shows that purchases by institutional investors are trending upward, after steady declines over the past few years. An institutional investor is defined as an investor who purchases 10 or more single family rental properties in a calendar year, someone that is actively engaged in the business of real estate investing. This is in contrast to your “mom & pop” investors, who typically engage in real estate activities as a side business or wealth building or retirement strategy.
During the real estate meltdown of 2008 & 2009, many “vulture funds” made up of institutional investors began to quickly form to take advantage of the opportunity created by the housing glut, which brought down prices dramatically while rental rates continued to rise. Even Warren Buffett, one of the most respected investors in the country, said if he had the people to manage them that he would buy 10,000+ single family homes immediately.
This rush to buy real estate by institutional investors hit its peak around 2011, and then began a slow and steady decline over the next few years as real estate prices went up across the country, lowering rates of return on investments in single family homes across the country. However, for the first time in 5 years, 2015 once again saw an increase in purchases by institutional investors, as a flat stock market has sent the “smart money” elsewhere to find adequate returns.
If you were fortunate enough to purchase a rental property at a discount in the 2010-2013 time frame, you may want to consider selling that property today. Due to high demand, you can likely get close to retail value, and then convert that single property with marginal cash flow into multiple properties with great cash flow, by purchasing from one of the many wholesalers in your area at 70% of value (or less).
And if you are in the wholesale business, you should be analyzing the local market data for multiple cash purchases in a given year by a single investor, and adding them to your buyers list. They are used to buying property close to retail, and so you could multiply your standard assignment fee by 2 or 3 times (thousands of dollars) compared to what a rehabber might give you for the same property.
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