Trump Versus Institutional Homebuyers: Opportunity for “Landlords on Purpose”?
“Every adversity, every failure, every heartbreak, carries with it the seed of an equal or greater benefit.”
(Napolean Hill)
In recent news, President Trump is working on banning institutional homebuyers (firms owning 1,000 or more residential homes) from buying more homes. These institutional buyers (IB’s), like Progress Residential, Invitation Homes, American Homes 4 Rent, and others, own about 3% of the homes in America.
The Trump administration rationale is that IB’s with unlimited checkbooks are outbidding families for the same homes which makes achieving the American dream of homeownership harder for regular citizens. IB’s are typically vultures in the market eagerly trying to buy affordable homes (around $200-400K in Charlotte), so there is truth in that. After they buy them, they usually fix them up (laminate wood flooring, new paint, new stainless-steel appliances, etc.) and make them higher-priced rental homes. Then instead of a family owning a home, the family is paying high rent to an IB.
The picture painted above of an IB is not a glamorous one! IB’s would tell the story a little differently than the Trump administration. They would say that they provide liquidity for the home sales market as a motivated buyer; this helps American families move on to buy other houses or cash out on their real estate investments. They would say they fix up houses that are in disrepair and introduce new, needed rental homes to the market for American families to live in. They are an instrumental partner in keeping American housing stock current and from neighborhoods incurring decay from dilapidated and abandoned homes.
As someone who regularly sells homes in this price range, I like dealing with the IB’s. They always pay cash, don’t quibble with repairs, and close on time. They are in the business of accumulating homes that fit their investment profile and they are good at it. The agents who work for them are cordial and non-emotional; they don’t hold a grudge when we reject their offer initially and they are still willing to make a deal months later if we call them out of the blue. Their offers are not usually outlandishly low; some are actually above what we expected to get from a non-IB buyer. They are a nice option for sellers to have!
In short, I think IB’s are both bad and good. But I don’t make the rules! I just try to work my best within them for our landlords, their rental homes, and the tenants.
If IB’s are banned, there will be fewer rental homes available. And in Charlotte at least, we need more rental homes for the influx of 157 people a day that are moving into our metro-area. Where will they come from? The Trump administration says they expect the void to be filled by Mom & Pop investors (aka you and me).
So here is the opportunity. I saw a statistic the other day that said that 51.5% of all US mortgages are below 4%. I also saw (and have experienced) that the home sales market has been relatively stagnant for the past 3 years. Many people believe the past low mortgage rates are causing the slow market. This has been labeled as the “lock-in effect” where sellers don’t want to lose their low interest rate to buy a house with a much higher interest rate. Their great past interest rate is “locking” them into their existing house. That makes sense to me.
Reviewing the information below:
IB’s being banned or curtailed would create fewer rental homes (less supply)
Strong rental home demand continues as experts say that not enough homes have been built and there is undersupply (strong demand)
Previously bought homes with sub-4% mortgages can cashflow better than buying investment homes now at higher interest rates (lower monthly cost)
Buying a new home in a buyer’s market is favorable (lower prices, more negotiation room, & less competition)
Real estate is considered a great investment that adds portfolio diversity while hedging against inflation
I would conclude (drumroll please), it might be a great time for smart investors to rent out their “locked-in” rate house and buy a new one to live in! There are families ready to rent them.
As opposed to an “Accidental Landlord” who is forced to turn a non-selling home into a rental, a “Landlord on Purpose” could be a profitable way to ride today’s market trends.
Happy Landlording!
Learn More