Another Phase in An Evolving Market
Posted: March 24, 2016 by John McClelland
The Las Vegas area experienced a wave of investor activity in the 2010 - 2014 years, normalizing greatly in 2015 as traditional buyers grew in share of overall sales. At the peak of investor activity, nearly half of all single family closings within the multiple listing service utilized cash. Currently, 23.5% of single family sales closed with cash, many of these investors. So while investor activity has clearly dwindled from just three years ago, there remains a lingering interest in single family homes as an investment class.
One of the reasons for this is the continued low yield investment environment both domestically and generally, internationally. Investments that are considered to be in moderate portion of the risk profile are generating relatively small yields. Locally, capitalization rates are about 5% when looking at the blend of sales occurring, which includes a variety of homes from old to new, large too small. With yields across many investment sectors posting smaller returns than that, it’s no surprise that interest in the SFR space remains, despite the relatively poorer liquidity relative to established financial instruments.
Most of the institutional investors are inactive in the market and are concentrating on effective management of their current holdings. On occasion, we are seeing a little activity from either REITs or institutionally backed enterprises, however this is often through note purchases, some of which later result in foreclosures, a less direct way for investors to access the market. If a note can be negotiated than that is great, if not, they would be happy to own the collateral as part of their portfolio.
The other class of investors are the "mom and pop" investors, many of whom are tired of the paltry returns on CD's, within certain funds and laughably, savings accounts. Despite the memory of the housing bust, some of these investors remain comfortable with the asset class and feel that they have learned a lot about the due diligence required to make informed decisions, rather than following the newsfeed headlines into an asset class. This is really the segment we consider to be a large part of Investor 2.0. These individuals may not always be in the high net-worth category but are typically good savers with an eye towards the future for either retirement, future college costs or simply to build wealth for security. Other buyers are partnerships of wealthy individuals who have teamed up for the purposes of diversifying across geographies and housing types. Finally, institutional investors are still relevant, but this is mostly a merger and acquisition phase in which this new industry consolidates.
Finally, Investor 2.0 also includes investors that are selling. In 2009-2014, the natural sellers were banks and families looking to escape a negative equity situation, along with traditional movers like job related relocations. Today, investors that bought during that period may be finding it’s a time to turn paper gains into realized gains. Either they recognize an opportunity elsewhere, they hit their pre-determined return threshold or they simply don't like being a landlord. Some sellers and buyers may also be considering a currency play. In investor 2.0, investors may be buying from investors because they either have different views on the future or they are in a different stage within their investment life cycle.
Many of our agents are very comfortable with working with investors of all types from individuals to large, sophisticated operations. We speak the language of investment and can access properties through multiple channels. It is our pleasure to assist both buyers and sellers within this asset class.
Note the distribution of investor sales across the valley.
January and February Single Family Home Purchases - Investor Purchases and All other Types