Large-scale, big money investors, like hedge funds, have flooded the single family real estate market, looking for rental properties that will produce good yield. While some have their own teams attending foreclosure auctions and doing the rehabilitation and remodeling, many would rather buy turn-key products, even if the price is slightly higher. The "pure" property flip appears to be less popular, although in some stronger markets it is certainly still happening.
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"I have seen a return of flipping, but only at the individual or small investor level. In some cases, these investors are targeting larger, institutional investors as potential buyers, " says Rick Sharga of Carrington Mortgage Holdings, a large fund investing in single family rentals. "I haven't seen institutional investors doing much flipping (although they will occasionally sell off a few properties from a pool if the homes don't fit their business model)."
Investors planning a REIT would not be flippers, Sharga notes, as what they need is a large pool of rental homes delivering the cash flow a REIT would require. Most of the larger investors are paying market price (sometimes a little less, sometimes more), which makes profitable flipping difficult.
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Until the rental market chills and the housing market shows strong price gains, pure property flipping will not be nearly as lucrative as it once was. On the positive side, continued strength in the single family rental market and the ensuing large investors interest offers smaller investors willing to do the dirty work a large pool of cash-heavy buyers.
Sector Watch: Construction & General Building Materials
- The Home Depot
- Lowe's Companies
- The Sherwin-Williams Company
- E. I. du Pont de Nemours and Company
- Apogee Enterprises
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