We talk a lot about real estate trends in Colorado, and one of the topics I’m following is institutional investors buying up single family homes (SFHs), condos, and other individual units. This trend started during the financial crisis when 4.7M homes were in foreclosure, and these investors were able to buy them for 30-50% off of the purchase price. It was a new concept at the time—institutional investors traditionally targeted large apartment buildings or multi family units because anything smaller wasn’t worth their time. It’s morphed since then, but this shift in strategy is creating some of the supply and demand issues we’re seeing right now.
- Listen to the podcast “#308 DDD: Competing Against Institutional Investors and Doubling the Size of Your Portfolio” on the Denver Real Estate Investing Podcast.”
- Watch the YouTube video (at the bottom).
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
Why are Institutional Investors Buying Single Family Homes?
In 2016, 95% of Fannie and Freddie loans were sold off to Wall St. investors. Some creative financing came in and the big players, like Blackstone and Strategic Acquisitions, started buying up SFHs in mass quantity—sometimes 200K homes at a time. That trend has continued to gain momentum over time, especially in the more bullish real estate market that we have right now.
People often ask why there are five cash offers on the table when they put in an offer on a home, and the answer is they’re up against institutional investors. This even happened to me back in May of this year when I was competing against 15 other offers, some of which were autogenerated contracts from large, institutional investors.
How can I compete with Institutional Buyers?
Because these are big organizations, it may seem impossible to compete against these entities as a small landlord. However, there is a lot of value for a renter to work with an individual landlord over an institutional investor. One of the trends we’re seeing is that these institutional buyers are changing leases from the standard 4 pages to 40 pages and attempting to pass liability onto the renter. Some of the clauses in these leases transfer responsibility onto the renter for things such as mold remediation, carbon monoxide detectors, and landscaping.
This is where there’s an advantage for our investors—tenants don’t want to be on the hook for these things. As a landlord, taking the usual responsibility for safety and upkeep may give you a leg up. State laws vary and landlords aren’t legally allowed to pass all of these responsibilities onto their tenants, anyway. But by saving tenants from the hassle of going through these massive leases, our investors build a better relationship with their tenants and can compete against institutional investors.
Connect with Us
It’s hard to know exactly what percentage of homes are purchased by institutional investors, but I am digging into it. Check back in for more information on this topic. And in the meantime, if you’re interested in investing in a property or having your current portfolio analyzed, reach out to us. We’d be happy to sit down with you, run some numbers, and form a plan.