The folks at CoreLogic and the U.S. Census Bureau have been crunching some numbers and their findings have aspiring real estate investors less than thrilled. In recent findings from CoreLogic, 2013 saw sales prices for properties sold at auction inch upward while monthly rental rates in much of the country remained flat.
Could the buy low/rent high heyday be on its way out? Analysts from CoreLogic have concurred that returns on housing investment properties have been dropping. This news comes as a shock and sad surprise for scores of potential investors who have been plotting their strategies and biding their time. Throughout the housing recovery period, American and foreign investors have been able to purchase foreclosed properties at bargain basement prices and still reap the rewards of substantial rental profits.
After the report, a spokesman for RealtyTrac, Daren Blomquist observed, “It’s gotten so competitive that discounts at foreclosure are not where they were and it’s harder for third party purchasers at auction to make a profit.”
The data gathered from CoreLogic’s analytical team showed that at the close of 2013, the potential for return on investment fell in eight of the ten cities previously deemed the “best buy-and-rent” locations.
For example, Tampa was number one in 2012 on the best buy-and-rent list. Average returns on residential investment properties stood around 10.5 percent. At the end of 2013, they had dropped to 9.7 percent. Housing market analysts have surmised that the explanation is linked to an influx of institutional investors who came onto the Tampa real estate scene. Those investors typically represent a large group, such as a bank, pension fund, labor union, or insurance company, which makes considerable investments on the stock exchange.
Sean Galaris, who is employed by the Tampa-based financial service firm, LM Funding, made the observation that, “It’s much more difficult to get a return when prices have been pushed up.”
Apparently investors throughout the country will be discovering that point on their own when the numbers fail to work. To be profitable, the yield must exceed the monthly mortgage amount plus the cash total the investor spent to buy and rehabilitate the property.
Another hot buy-and-rent market was that of the Windy City. While 2013 was an especially good year for investors, the yield was quite a bit less – only 9.9 percent, which was a downward shift from the 2012 total of 10.4 percent. Other previous heavy hitters followed suit, with Orlando going from 10.3 to 9.4 percent, and Atlanta changing from 10.2 to 9.3 percent by the end of 2013.
Two noteworthy cities that are holding their own are Houston, with a rise to 8.8 percent from 8.5. Charlotte ticked up only slightly, from 7.8 to 7.9 percent. Other stats revealed that purchasing a foreclosure for a song will no longer be par for the course either! RealtyTrac’s Blomquist reported that, “Nationally, homes sold in foreclosure auctions now go for just 4% less than regular sales, down from 16% in 2012.”
By contrast, home prices shot up in 2013 and according to the most current information from the S & P/Case-Shiller report, home prices escalated by close to 14 percent by the end of October 2013. All of this news comes with numbers from the U.S. Census Bureau that confirm rental rates are lagging. The agency confirms that, “rents only grew an average of 2.2% during the first nine months of 2013, compared to the same period in 2012.”
All of these factors are having an impact on home purchases made by investors. In the Las Vegas market, which has come back to the top after a rocky 5 years, the writing is on the wall. Sales to investors have been brisk in the last two years. However, a local real estate investor, Glenn Plantone, remarked recently that rents only grew an average of 2.2 percent during the first nine months of 2013, compared to the same period in 2012.
Curious about properties still out there that have rental potential and won’t break the bank?
Here’s a look a 3 from Houston and 3 from Charlotte, courtesy of Trulia:
- Tidy duplex in established neighborhood: http://www.trulia.com/property/3126541132-2911-Briarwick-Ln-Houston-TX-77093
- Quiet and convenient- http://www.trulia.com/property/3140053534-7012-Garden-St-Houston-TX-77087
- Duplex with great rental history- http://www.trulia.com/property/3135216816-17004-Pastoria-Dr-Houston-TX-77083
- Solid brick ranch with lots of potential- http://www.trulia.com/property/1041410466-1407-Painter-Pl-Charlotte-NC-28212
- Move-in ready charmer- http://www.trulia.com/property/3133253979-2224-Rozzelles-Ferry-Rd-16-Charlotte-NC-28208
- Wow! The price is right for this spacious condo- http://www.trulia.com/property/3139698426-5904-Crape-Myrtle-Ln-27-Charlotte-NC-28216
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