We all know what happened last time investors got a little too greedy with mortgages, but it appears that the taboo-nature of real estate investing is now beginning to dissipate, as both "mom-and-pop" and fund-based investors look toward real estate once again for stable, comfortable returns.
Whereas the last time around, mortgage investments were almost always a short, Hedge Funds and PE funds are now going long on real-estate, at least according to The Economist.
I've always thought of real estate investing as being a simple-man's game. I personally know a lot of people who couldn't even pronounce "Black-Scholes", let alone actively manage a portfolio, who have made a killing buying up properties and renovating them. Most of these people aren't "finance-types"...by and large they are people who can take a property and renovate it with minimal cost because they're blue-collar DIY-types. Perhaps this is why this recent foray into real estate on the part of PE firms is interesting.
I mean, the guys at Blackstone aren't going into these properties with painting supplies and caulk, but it's definitely interesting to see these guys going long on properties and looking for a stable, but meager, return (the article cites 7%). I guess a lot of people out there are betting on real estate prices climbing back up, though maybe not to 2007 highs, in the coming couple of years. Unlimited quantitative easing, and the accompanying low interest rates, probably help the cause too.
It'd be nice to get involved in real estate investing on a personal level. There seems to be a trend of moving toward a renter's market here in the United States, and it makes sense for investors to take advantage of this situation.
What do you guys make of this recent shift toward real estate investing on the part of the giants? Anyone involved in personal real estate investing? Is it where you want to be for the long-haul?
Thanks for reading.
Even during an apocalypse, real estate will always hold its value.
With low housing starts, there are a lot of those DIY blue collar types who lost most of their wealth and can't find work. The relatively low cost of renovation probably plays a role in the attractiveness of the trade (along with rent-buy spreads and availability of suitable properties at auction).
The investment thesis for Blackstone et. al. is pretty simple. Since (i) house prices are depressed, and (ii) rental rates are historically high against mortgage rates, there is an opportunity to buy residential real estate and rent it out for a nice spread on the carry, in anticipation of a broader residential real estate market recovery. They're even starting to securitize the rent streams, which I think is awesome.
That said, I don't think that improvements are a big consideration. Contractors will be/are being tasked with maintaining basic upkeep, and that's about it.
OP: You mentioned that you know people who have been successful "flipping" houses. When were they doing this? I would argue that folks who did so pre-crisis were benefiting mostly from market trends, and not their own skill. I would also argue that, in any environment, it's a terrible investment for the average person.
The monthly housing data has been showing a recovery for the past few quarters, so its no surprise funds are getting back into. Data is showing their is double the number of family starts (supposedly demand) vs housing start, indicating there should be a shortage of supplies in the future which will drive housing prices up and housing starts.
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