Could national owners of local rental homes cash out now? Data shows motive but no action

If the big institutional owners of single-family homes wanted to cash out, recent gains in home prices present a good opportunity, according to national real estate analytics firm RealtyTrac.

There’s no evidence they’re doing this, RealtyTrac vice president Daren Blomquist said Tuesday. But as big investors like Invitation Homes and American Homes 4 Rent have bought a significant share of single-family homes in individual markets across the country, many local people have wondered what the companies’ long-term plans are. Will they buy and hold? Will they hold and sell? Will they flood the market?

“We did this report because people are theorizing that they’ll start selling and asking us if this is happening,” he said.

For now, the big players are holding. RealtyTrac data shows that, as does data from the Pierce County Assessor’s office. The investment firms have long contended that they are interested in building a new business model, not flipping homes.

“We are committed to building national, long-term businesses that cater to the portion of the market that will always desire rental options,” according to an FAQ on the investor-firm founded advocacy group National Rental Homes Council. “Selling all our homes at once would work against these goals.”

Some of the companies also have sold securities tied to the rental income of some of its properties. Blomquist said that also appears to be an argument against the companies’ selling lots of homes at once.

In Pierce County, institutional investors started buying single-family homes in late 2012. Almost all were foreclosures that the companies renovated and then rented. The big players locally are Invitation Homes, American Homes 4 Rent, and FREO.

AH4R was the first to jump into Pierce County, in October of 2012. It now owns about 200 single family homes, according to county property records. Both FREO and Invitation Homes started buying about six months later, in March 2013.

These companies gobbled up about 10 percent of all the homes available in Pierce County from September 2012 to September 2013. In addition to taking distressed properties off the market, they’ve renovated them and pumped millions into the local economy.

Invitation Homes, a subsidiary of massive private equity firm The Blackstone Group, now owns about 990 homes in Pierce County. FREO has just 134.

For its report, called “ Where Institutional Investors Have the Most Motivation to ‘Cash-out’,” RealtyTrac drilled down only to the “metropolitan statistical area” of Seattle-Bellevue-Tacoma — a data set that often isn’t valuable to analyze Pierce County specifically because of the skewing effect of Seattle and Bellevue. Everything is pricier there.

In this case, the three equity firms active in Western Washington are most active in Pierce County. So most of the numbers for the Seattle-Bellevue-Tacoma MSA come from here, making them a bit more reliable when it comes to local trends.

The data show those three firms taken together have seen a 23 percent gain in equity since they started buying in the Seattle-Bellevue-Tacoma area. The average purchase price was $151,390, and the average estimated market value now is $185,544, the data show.

Taken by individual company, Blackstone’s Invitation Homes has had the largest potential equity increase in the Seattle-Bellevue-Tacoma area — 26 percent, from an average purchase price of $197,309 to an average estimated market value now of $248,731.

That sale number could show a good example of some skewing — the median sale price in Pierce County for a single-family home in December was $219,000, according to the Northwest Multiple Listing Service. Invitation Homes has been quite active in King and Snohomish counties.

For its cash-out analysis, RealtyTrac looked at all condos, townhouses and single family homes that were bought from January 2012 through August 2014 by institutional investors nationwide. They then analyzed purchases that had both pricing information as well as current estimated value information available.

Here are some highlights:

•  Nationally, investors bought properties for an average of $167,556. Those properties have a current estimated value of $211,897, a potential gained equity return of 26 percent or $8.9 billion if all of those properties were sold.

•  Homes purchased in 2012 have potential returns from gained equity ranging from 38 percent to 43 percent depending on the purchase month.

•  Markets where the top investors have the most motivation to “cash out” based on potential returns from gained equity include Chicago; Palm Bay-Melbourne-Titusville, Florida; Orlando; Columbus, Ohio; Indianapolis; Atlanta; Jacksonville, Florida; and Charlotte.

•  In some areas, the investors doubled their money. The metro areas with the highest percentage of gained equity potential returns were Seaford, Delaware (101 percent); Kennewick-Richland-Pasco (75 percent); Boulder, Colorado (69 percent); San Francisco, California (63 percent); and Santa Rosa, Calif. (62 percent).