Rentals, Rentals, Rentals

Several Real Estate Investment Trusts have come into town and are buying up houses to rent. America Homes 4 Rent has been here the this year and has bought 100’s of homes. Own America has just entered the market and will buy several 100 in the next year. I have talked to other Realtors in my company and have heard that there are many other large and small groups of investors that are buying up homes to rent also. This will probably go on for the next couple of years or until the market gets saturated or rental rates start falling. Then these companies will start selling the properties.

Rentals

Investors are buying homes for rentals

It is strictly a numbers game. These investors have formulas that have to be met before they are interested. Parameters are different for each company but generally they are looking for capitalization rates (how much return on investment per year), better neighborhoods, what the video of the property looks like, what comparable rental rates are for the house, etc. REO’s (Bank owned) and short sales are not excluded. The property has to be listed. The investors are paying cash which means they can close fast. These investors and REIT’s are using local Realtors to find them homes.

The reaction from my friends and past clients is that rentals will hurt property values in communities. This may be somewhat true. Only time will tell. These rentals will be managed by professional local property management companies. It would be in everyone’s interest if the houses are well maintained. The investors want these property values to be maintained and rise. The neighbors want the houses maintained to keep the neighborhood values high.

My take…Inventories are extremely low. The best houses sell quickly. The rest sit on the market a long time. These investors will buy anything if the numbers work. This keeps the inventories low and the prices high. A lot of Pike communities have or are developing covenants restricting rentals. If the Home Owners Association is active in a community and the covenants are strong and followed, I suspect that rentals won’t be problem. If rentals become a problem in Indianapolis, I would imagine that the City Council will develop and pass new code on rentals. In my mind this is long overdue and may help communities that don’t have active Board of Directors and the resources to enforce covenants. The unknown factor I see is what happens when these investors start unloading these homes in a couple of years. Will they flood the market with houses for sale or will they trickle them out?

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