Week 28: Growing Your Portfolio

Many of our clients continue adding to their portfolios. Buying because they are confident in our ability to make their investments a success. Property management is a fairly low-margin business, but the commissions on future investment purchases is quite profitable. And due to our unique experience in the market, we have become experts in identifying suitable rental properties for our clients.

We are at historically low inventory levels across the board, and at almost all price points. And there is very little distressed inventory on the market. I have always loved foreclosed properties – selling them and buying them. We listed over 1500 distressed properties over the five years after the crash and made several of our property management clients a lot of money.

Prices have not risen enough for many home owners to sell, pay off their mortgage and walk away with a down payment for the next home. In other cases, people who do have enough equity to move do not see anything at all on the market they like enough, or can afford to buy. 

2017 and Beyond

I expect 2017 and 2018 to be record setting years in the real estate industry. Notwithstanding a global crises, the stars are aligned for a huge upswing in sales based on an increase in available inventory for sale. After the election cycle, buyers woke up in 2017 more confident in their futures and are again willing to take reasonable risks to improve their housing situations. And we are finally starting to see millennials moving out, settling down and buying homes of their own.

The last wave of foreclosed inventory from the financial crises hit the market in 2017. Many zombie houses sat vacant in markets across the country, and I believe we will see the last of these abandoned properties list for sale in the coming year. This will be a great buying opportunity for our investors.

One other delayed impact of the financial crises will positively affect inventory levels. The big banks modified thousands of mortgages to help homeowners avoid foreclosure. And as these modifications fail, banks will begin to foreclose, putting at least another small wave of foreclosures into the market.

Investment Funds and Pool Sales

Three to four years after the crash, HUD, Fannie Mae and Freddie Mac were sitting on tens of thousands of homes, and it would have taken a decade to sell them one house at a time, further delaying the housing recovery. So they grouped these properties into pools, and sold them to various large investment funds at very attractive prices. 

Many of these funds then entered the property management arena, renting what they could and selling off the properties that were uninhabitable. Now that the market has improved, we will see these funds list and sell these appreciated assets and begin to harvest their profits. We are now seeing listings come in from dozens of investment groups we have never heard of before – in the past, these would have been listings that came to us from Fannie Mae or HUD.