Taking a look at the interrelationships among Wall Street investors and the real estate market with the guidance and special report of InmanNew, Part 1 of this two-part series looked at the who, where and how much.
Part 2 of this series takes a look at the types of investments, the whys of investments and the possible implications for agents and consumers of Wall Street investment into real estate.
The Types of Real Estate Investments
Inman tells us that one of the biggest trends involved with Wall Street investors backing real estate has to do with the real estate’s rental sector. Around the time of the housing crisis, Freddie Mae began selling off non-performing mortgages with the goal of repurposing or “re-performing” these assets to make owners, homeowners or investors, start paying again. Some of those mortgages never got back to re-performing, investors foreclosed and the investors then bought up those homes behind the mortgages.
By 2016, according to collaborative reports commissioned by consumer advocacy groups, Freddie Mac, Fannie Mae and HUD sold off some 104250 delinquent mortgages. The big investors who bought much of those mortgages included Blackstone Group’s Invitation Homes, American Homes 4 Rent and Premium Partners. (Pre-recession, mom-and-pop landlords operated up to 80% of the US rental market.)
Are these big time investors equipped to run/oversee these rentals where people are now living? We don’t know for sure however, we do know there are now higher eviction rates and that rents keep pushing upwards. We also know that big time investors AKA landlords are less likely to invest in local communities, schools, parks, etc.
Other types of Wall Street investment into the real estate sector include…
- short-term fix and flip mortgages
- short-term fix and flips KKK
- LendingHome – a platform that packages short-term loans into securities that are sold to other investors much like the “old” mortgage-backed securities that created such havoc per the housing crisis.
- Construction.biz – this company builds its own homes for rental purposes
- Amazon is now in the prefab home-building business
- Roofstock offers stakes for institutional and retail investors to own single-family rentals
And, of course, Wall Street is investing in iBuyers. Blomquist News now estimates that 10% of properties sold by iBuyers “is going to institutional rental investors.”
Why Is SO Much Money Going into Real Estate from Wall Street?
Russ Cofano, the former president of eXpWorld Holdings, told InmanNews, “Generally speaking, money chases opportunity.” And Jake Fingert of the Camber Creek Fund said, “…we’re just at the tip of the helm for all the different ways that can be disrupted…” in real estate.
Clearly, Zillow was instrumental in “freeing” real estate data to the public. Consumers can now “shop” online for the type of house, neighborhood, school system, town they think they may like without the collective control of brokerages.
GCA’s Gough told Inman, “As tech allowed consumers to become more independent in their home search, agents, brokers, lenders and other market participants (insurance companies, title companies, mortgage lenders) have had to develop tech tools to engage with consumers digitally in order to make the transaction process more efficient.”
What Does All This Mean for Agents and Consumers?
Fingert of Camber Creek believes, “humans will have more time and energy to put into value-added services (because) technology and automation now enable (the process) of real estate to be better, faster and cheaper…”
The iBuying sector now has models that “can easily cut real estate agents out of the equation, even if they claim that’s not what they want to do.”
Can individual agents compete with Zillow’s Zestimates or Zillow’s Offers? It’s likely too soon to say but it isn’t too soon to say that more money from Wall Street will continue to funnel into real estate and prop-tech simply because of the snowball effect and because more data spawns new market opportunities.
Very special thanks to Jim Dalrymple II, the writer of this guide for Inmannews.