Institutional investors up their Kingsport-Bristol housing game

Institutional investors are upping their Kingsport-Bristol area housing game. Their share of all-cash sales during the second quarter was up 91% from last year. There were likely other institutional investor deals in the region, but Kingsport-Bristol was the only area with enough sales to be part of ATTOM Data Solution’s latest Home Sales Report.

That doesn’t mean investment firms like Blackstone are making a big entry in the four-county Kingsport-Bristol area. News reports about big investors jumping into the single-family rental market are accurate. But their focus is on affordable homes in high-density markets like Atlanta and Dallas.

Elem Botella explained why large investors are interested in becoming landlords in an item in Slate’s MoneyBox. Her example focused on Invitation Homes’ – a spinoff from Blackstone.  “One way to think about Invitation Homes’ business strategy is to consider the value of the properties the firm is buying, relative to the rents they charge. According to a recent SEC disclosure, Invitation Homes’ portfolio of homes is worth of total of $16 billion (after renovations), and the company collects about $1.9 billion in rent per year. That means it takes only about eight years of rental payments to pay back a typical house that Invitation Homes have bought. The usual rule of thumb for evaluating a fair sale price, says Kundan Kishor, professor of economics at University of Wisconsin-Milwaukee, “is that price to rent ratios are around 20 to 1.” When price-to-rent ratios are very high, it makes more sense for consumers to rent than to buy, and when they are low, it makes more sense to buy than to rent. That Invitation Homes is getting deals twice as good as a typical homebuyer shows that it’s not just buying any homes: It’s buying the specific houses with the greatest potential to be wealth-building for the middle class.”

This is basically the same investing formula for smaller institutional and induvial housing investors. The objection of some housing experts is on the broader effect of the investment strategy and practice. It holds that since many of the purchases are all-cash deals, they shut out and deplete the inventory of homes that might otherwise be bought by younger, working and middle class-households. About a third of all Tri-Cities’ existing home sales are all-cash deals. Some of those all-cash sales go to the rental stock. Others are flips that are resold as either rentals or single-family housing. According to ATTOM’s flipping sales, most of the flips are resold in the affordable housing price range.

The local institutional investors are typically an individual or small groups looking to cash in on the region’s tight rental market. The largest share of Tri-Cities area landlords is local residents. At last count, they owned a little over 85% of the 98,500 single-family and condo non-owner-occupied investment properties. That region includes Carter, Washington, Unicoi, Hawkins and Sullivan counties in NE Tenn. and Scott and Washington counties in SE Va. plus Greene and Johnson counties. The latest vacancy rate for those properties was 4.8%. That’s one point higher than the national vacancy rate. But it’s better than Tennessee’s 5.6% rate. ATTOM’s last count of out-of-state ownership of investment properties was 14.7%.

Although Kingsport-Bristol’s institutional investor purchases are a big percentage they represent only 18 sales. So far this year, there have been 27 such purchases in Kingsport-Bristol. At the latest count, 32% of the Kingsport-Bristol metro housing stock is rental property. The Kingsport-Bristol metro area includes Hawkins and Washington counties in NE Tenn. and Scott and Washington counties in SW Va.

ATTOM Data solutions defines an institutional investor purchase as “a residential property sale to non-lending entities that purchased at least 10 properties in a calendar year.”

Institutional investors nationwide accounted for 4.6% of all single-family and condo purchases during the second quarter. That was the biggest increase since the fourth quarter of 2015. It reflects just how strong both the national and local single-family rental market has become. There’s also an exodus of sorts of landlords who are getting out of the rental business. The primary drive is existing and new home prices have increased much faster than wage growth. That forced many first-time buyers and those shopping for affordable homes out of the buying market.

ATTOM’s analysis comes from recorded sales deeds, foreclosure filings and loan data. Statistics for previous quarters are revised when each new report is issued as more deed data becomes available.

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Categories: REAL ESTATE