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I have been pondering this for the past few weeks. Here's why:
I live in a deed restricted neighborhood of modestly sized/priced homes, ranging from maybe 1,800 SF to 2,600 SF. Some have pools and three car garages as well. At the present time, I would guess, based on current sales in the MLS, the average price is around $200k for a home in this area.
Four of the recent sales have been to the investment firms that are buying up properties in the Tampa area and flipping them as rentals.
Every one of these properties is currently listed as a rental, with a minimum monthly rent of $2,150. None of them are higher end properties, that is, none have pools or three car garages.
None of them are rented, either. A couple of them have been on the market for over a month.
In the next neighborhood over, right across the cul-de-sac from a former property I owned is a nice 5/3 with a pool, lanai, fenced yard, etc. Our friends lived there until February, when they were relocated out of state. An investment firm made a full price cash offer the day the property went on the market. It's now for rent (since March) for $2,200/month and it's still vacant.
Are these investment firms on crack?
I say that because I just don't see the market supporting rental rates like this. Yes, this is a nice area with A rated schools and amenities such as a YMCA, little league, proximity to Tampa and shopping, etc. That being said, I question how they are going to find people who have a minimum of $4,000+ just to walk in the door, since the first month's rent and a month's rent for a damage deposit is required.
I have to believe that unless someone has a former bankruptcy or foreclosure in their recent past that if they have that kind of cash laying around and can qualify for over $2,000/month in rent they can probably find a lender and buy a home.
I would be interested in hearing from other area residents with similar properties as to their experiences with these rental homes. As an HOA officer and a property owner, I'm not keen about rentals in the neighborhood to begin with, and even less pleased if they start lowering their rates just to try and get the properties occupied.
They're going to fail. I've been saying this for a while now. With stagnant wages coupled with tax and insurance hikes, not to mention no real improvements to the job economy (unless you consider a handful of low wage jobs here and there an improvement), these firms are smoking something fierce. What I wonder is, what do the homeowners in these communities think about the situation? I can't imagine any desirable neighborhood would welcome a flurry of renters, but vacant properties have just as much potential for damage to the community, home prices, etc.
This is what happens when greed trumps common sense. Eventually, common sense wins. I personally hope these firms go bankrupt.
It doesn't make sense to me at all whatsoever. These rent rates are practically double what my mortgage is. I briefly considered looking for a rental because I had time constraints as I was relocating for a job. We were really interested in a house that was a short sale but it would have taken a LONG time to complete the deal. After looking at what I'd have to pay for a rental, that idea was out of my head by the next day.
I'm just trying to understand how they are arriving at their rental rates, for one thing.
In my former neighborhood, which has homes approaching the $300k range, $2000/month for a rental is not unrealistic, and I even know of at least one property that has commanded that sort of money and is rented. It has a pool, is on a conservation lot, and the rent includes lawn and pool care, as the owners want to keep the place in good shape.
My current neighborhood would make this a real stretch. I could see maybe $1800/month for some of the properties they have, but $2150? One of these is the smallest model built, barely 1800 SF, with a two car garage and no additional amenities.
While I am not pleased about rental properties in the neighborhood for a number of reasons, having them vacant is not an idea situation either. Drop the rent because they're not moving, and now we potentially introduce issues regarding the people the property is rented to.
Add to this that the renters really have no obligation to the HOA, meaning if there are issues we have to go to the investment firm to get things resolved. I can't see that being easy.
The only other scenario I can see is if they realize the folly of their ways and just flip the properties back into the direct sales market. No renters means no income. They can't have these places vacant for long or it's going to eat into their bottom line big time.
I have been surprised by rental rates that even little apartments actually get around here.
The investors are not usually buying these homes for permanent rentals. The rental income is simply a stop gap, until the homes rise in value enough to sell at a profit. They may be testing the rental rates and may lower then some or may not.
In the end, most indicators are showing definitive improvements in our economy and housing prices are no doubt going up. Many investment companies have studied the data and are making an educated financial decision. They may or may not be right, but these companies have studied the market and indicators more than the average joe has.
This is no the tail end of a bubble where it is about to burst soon. This is the beginning, so their bets are not all that bad. We shall see.
I have been pondering this for the past few weeks. Here's why:
I live in a deed restricted neighborhood of modestly sized/priced homes, ranging from maybe 1,800 SF to 2,600 SF. Some have pools and three car garages as well. At the present time, I would guess, based on current sales in the MLS, the average price is around $200k for a home in this area.
Four of the recent sales have been to the investment firms that are buying up properties in the Tampa area and flipping them as rentals.
Every one of these properties is currently listed as a rental, with a minimum monthly rent of $2,150. None of them are higher end properties, that is, none have pools or three car garages.
None of them are rented, either. A couple of them have been on the market for over a month.
In the next neighborhood over, right across the cul-de-sac from a former property I owned is a nice 5/3 with a pool, lanai, fenced yard, etc. Our friends lived there until February, when they were relocated out of state. An investment firm made a full price cash offer the day the property went on the market. It's now for rent (since March) for $2,200/month and it's still vacant.
Are these investment firms on crack?
I say that because I just don't see the market supporting rental rates like this. Yes, this is a nice area with A rated schools and amenities such as a YMCA, little league, proximity to Tampa and shopping, etc. That being said, I question how they are going to find people who have a minimum of $4,000+ just to walk in the door, since the first month's rent and a month's rent for a damage deposit is required.
I have to believe that unless someone has a former bankruptcy or foreclosure in their recent past that if they have that kind of cash laying around and can qualify for over $2,000/month in rent they can probably find a lender and buy a home.
I would be interested in hearing from other area residents with similar properties as to their experiences with these rental homes. As an HOA officer and a property owner, I'm not keen about rentals in the neighborhood to begin with, and even less pleased if they start lowering their rates just to try and get the properties occupied.
RM
Morton, thank you for this valuable and informative post. I have read the reports, even here on this forum, of these investment/hedge fund/private equity firms buying up properties in bulk in various parts of the country, and of course here in Florida. I was trying to think of what their game might be, because I couldn't imagine these entities wanting to get into the landlording business. But in your very observant and well written post lie the clues and I finally put it all together.
Some background: first of all, anyone who has done any reading about these firms will come to realize that the principals pretty much all know each other or at least know of each other and through their connections can get in contact with one another when they want to. Sometimes they do deals together, sometimes they screw each other, they belong to many of the same clubs, attend the same private conferences, belong to the same industry organizations, vacation in the same spots, blah-blah.
I watched a video by one real estate advisor who has been following this. He calls it a massive pump and dump scheme. It made sense to me, but what I was missing was how they'd make it work. And here's where your post turned the light bulb on:
"I have to believe that unless someone has a former bankruptcy or foreclosure in their recent past that if they have that kind of cash laying around and can qualify for over $2,000/month in rent they can probably find a lender and buy a home."
BINGO! And that's how they do it and get people to buy rather than rent. Hopefully from them. Pump the prices by making it somewhat more attractive to buy rather than rent, then dump when the time is right. And you can take it to the bank they're working together, on the premise that it's good for all of them.
Even though the economy is improving in the USA, and the housing market is turned/turning around, jobs are still an issue aren't they? Unemployment still high and are we seeing (in Florida) any growth, jobs here?
Do corporations have an incentive to move facilities, office, factories here to stimulate the job market? hmmmmmmmm
BINGO! And that's how they do it and get people to buy rather than rent. Hopefully from them. Pump the prices by making it somewhat more attractive to buy rather than rent, then dump when the time is right. And you can take it to the bank they're working together, on the premise that it's good for all of them.
If this is even remotely the case, it's good for me because it means they'll potentially drive up property values in my neighborhood. I'm not going to be selling or buying any time in the near future, so as long as the market goes up I'm all for it.
I will say that they do seem to be maintaining the properties, which is a good thing. As an HOA board member I had some serious reservations about these, mainly dealing with how well they would be maintained. So far, so good.
I know that three of the four properties in my neighborhood were bought at market and were not distressed sales of any sort - these firms paid full market for them when they were sold, so their profit margins on them at this point are slim at best. If they don't have some cash flow over the next year with these I don't see how they can come out ahead short of a significant bump in the market.
I know that's not necessarily the case with other areas, but I know of five properties that have been bought and flipped as rentals by these firms, and four of the five were purchased at market for cash. None of them are occupied. Knowing the prices paid, that's nearly $1,000,000 cash they put out with no immediate return.
Doesn't look like a good investment to me unless they're holding out for a big jump in the market. They're not earning a return on vacant properties, and the appreciation certainly doesn't come close to the rental income....
Even though the economy is improving in the USA, and the housing market is turned/turning around, jobs are still an issue aren't they? Unemployment still high and are we seeing (in Florida) any growth, jobs here?
Do corporations have an incentive to move facilities, office, factories here to stimulate the job market? hmmmmmmmm
The unemplyment rate in Florida and more specifically Tampa has fallen dramatically. 7.2% In Tampa now. We are LOWER than the national average. We are outpacing the country as a whole.
While not perfect, it is getting much better. Negative nellies will for sure make statements claiming this and that, but will probably not provide any proof. Just hyperbole.
I would be interested in hearing from other area residents with similar properties as to their experiences with these rental homes. As an HOA officer and a property owner, I'm not keen about rentals in the neighborhood to begin with, and even less pleased if they start lowering their rates just to try and get the properties occupied.
RM
Even in my ghetto neighborhood, seeing single family homes turned into rentals isn't an ideal situation, but what are you going to do? The investment firm owns the property fair and square and can rent it out and charge what they want. They can even turn it into Section 8 housing (I've seen it happen in some pretty fancy neighborhoods). Buying a home for cash means no interest payments (or insurance if they want) so lowering the rent probably won't cut into their bottom line as much as you think.
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