Salient to Investors:

JPMorgan Chase Private Bank put individuals and families with more than $5 million into a partnership that bought over 5,000 single family homes to rent in Florida, Arizona, Nevada and California. David Lyon at JPMorgan said investors can expect returns of up to 8 percent annually from rental income as well as part of the profits when the homes are sold.

A growing number of private-equity firms and individuals are buying rental homes in the regions hardest hit by the US housing crash.

John Buckingham at Al Frank Asset Mgmt said traditional places like homebuilder stocks and appliance makers are not the best place for new investments as they’ve had fantastic runs.

Michael Widner at Stifel Nicolaus is concerned growth is already priced in the homebuilder stocks.

Gary Beasley at Waypoint Homes said it’s hard to find a private-equity firm that doesn’t have a strategy in this market.

CoreLogic said loans closed in 2012 had an average borrower credit score of 740, versus 716 in 2006. US home ownership declined to 65.4 percent at the end of 2012 versus a peak of 69.2 percent in June 2004. The number of renter-occupied residences rose 1.1 million in 2012, while owner-occupied households fell by 106,000.

Sandeep Bordia at Barclays said:

  • Buying rentals in some locations has become more attractive to bond investors as mortgage-backed securities without the backing of the U.S. government have become more expensive.
  • Rentals in beaten down areas like Miami, Orlando, Vegas, Tampa return between 6 percent and 8 percent, while non-agency mortgage-backed securities are generally yielding 4 percent to 6 percent.
  • The sweet spot in many areas are homes between $100k and $150k: smaller homes can provide the highest gross rental yields but have fixed costs and the risk of higher tenant delinquencies.
  • Areas where property prices are already high, like San Diego, Los Angeles, Denver and San Francisco, offer rental yields of 4 percent to 5 percent.

Craig Pastolove at Morgan Stanley said:

  • Single-family home market is already crowded, and bargains in the best locations are dwindling.
  • A lot of capital is chasing these investments so there may be price inflation.
  • Buying single-family homes to rent is among the smarter ways to invest.
  • Wealthy clients should buy the properties to rent themselves if possible. Morgan Stanley is not purchasing or managing homes but making loans at rates lower than a typical mortgage, using clients’ investment portfolios as collateral.
  • Housing will continue to recover.

Rex Macey at Wilmington Trust said investors should not write off companies directly tied to real estate because housing is so intertwined with the economy that many companies directly or indirectly will benefit from a continued rebound.

Mark Kiesel at Pimco said housing-related investments will continue to do well as Americans seek to buy homes – it is time to buy.

Brett Nelson at Goldman Sachs said bank stocks are an inexpensive opportunity because many of their loans are backed by US real estate.

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