If “mom and pop” landlords can be characterized as mammals, welcome to the Age of Dinosaurs. The sheer number of single-family homes being bought by venture capital corporations, hedge funds, syndicates, conglomerates, or any other term used to describe an industrial-scale is unprecedented. Mom and pop are not out buying homes to the extent any of us would like to because properties are being scooped up by investor corporations faster than we can perform reasonable due diligence. Due diligence – let us get back to that in a minute.
As an investor, I am uncomfortable with the speed out-of-town investors are buying properties. Maybe my discomfort just comes from jealousy, but maybe it also comes from recognizing Pandora’s Box when I see it. If a hedge fund is able to purchase 200 single-family homes in one city, what triggers do you think they have in place to resale them? Obviously, they are hoping for a gain in equity while renting the property at the current market rate. What happens if the home value decreases? To what value do you think the investors from New York are going to allow properties to decrease in Oklahoma before they decide to “liquidate their position?” What will be the result on the local housing market if 200 homes suddenly flood the market? Do you think they are investing in the community or investing for the purpose of gaining shareholder value? I know the pandemic has altered our expected economic cycles and I am aware that the upturn in real estate has been a pleasure to behold. Despite the present sun on our backs, as sure as that same sun will rise tomorrow, real estate will eventually resume a cycle of boom and bust. What do you think the dinosaurs will do once they get a whiff of a bust?
Depending on whom you ask, dinosaurs were likely wiped out relatively quickly by an unexpected bolt from above. We then entered the Age of Mammals; the little guys finally had their day. I guess that brings me back to mom and pop – those cute little investors with a handful of properties and big dreams of owning more. The smart ones are saving for their opportunity to buy. They are cultivating relationships with realtors, lenders, local real estate investor groups, the present owners of houses in the neighborhoods they hope to invest in. They are also doing their due diligence (I told you). Due diligence possibly includes researching trends and headlines in real estate on phenomenal websites like Real Estate Investor Times or some other lesser site. Due diligence includes knowing what the schools are like in the neighborhood you invest in. Maybe due diligence means knowing the name of the third grade teacher because he was your kid’s teacher too. Maybe due diligence means knowing a given neighborhood has soil that predisposes it to foundation problems. Perhaps the area is excessively noisy because someone stamps out metal casings at all hours. My point is that mom and pop live there, they know who lives near there, they know who used to live there and why they don’t live there now.
All the technical analysis, trend lines, demographic studies or population migration charts cannot provide the granular level of detail mom and pop bring to the local real estate market. Make no mistake, dinosaurs will eat mammals. All the eviction moratoria in the Cenozoic Era will never convince me that some have not enjoyed watching mom and pop struggle the past 2 years. Many have benefited from the collapse of mom and pop investors. Have faith my humble dreamers, the sun does not shine on the same dog’s back all day. Wall Street will eventually tire of the shiny new real estate object in Oklahoma and the normal economic cycles will reorganize. Take the financial advice of any boy scout in the country- Be Prepared.
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