Salient to Investors:

As the housing market recovers, neophyte investors are following the lead of private-equity firms like Blackstone, investing in cheap properties they can rent and sell when values rise enough.

Lawrence Yun ar NAR said the typical small-size mom-and-pop investor has two or three properties – about 90 percent of investors homes sales in August went to people with fewer than 20 properties.

Investors bought 66,780 homes in August, the highest since the beginning of the foreclosure crisis – investors’ share of sales was 18 percent.

MPF Research said the average US rent rose to a record $1,086 a month in Q3, up 3.3 percent from a year earlier. Greg Willett at MPF said individual investor demand is there, but it’s risky to put all your eggs in that one basket.

The Commerce Dept said vacancy rate fell to a 10-year low of 8.6 percent in Q2 – there are 40 million rental units in the US, and 75 million owner-occupied homes.

Paul Diggle at Capital Economics said:

  • Even with rent gains, buyers of distressed properties to rent would need a discount of 30 percent to get a yield of 8 percent, a 50 percent discount to get a 12 percent yields; not accounting for the time a landlord spends responding to disgruntled tenants and repairing burst water pipes, broken furnaces or leaky roofs.
  • Many homes in foreclosure are neglected.
  • Small-scale investors may actually run at a loss on rental housing if sweat equity is counted.

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