For the most part, Republicans blame Fannie Mae/Freddie Mac and government policies for inflating the housing bubble, while Democrats blame Wall Street for creating exotic investments that funneled subprime mortgages. Regardless, Wall Street’s success in the alternative real estate market depends largely on unparalleled demand for rentals from American families who homes were lost to foreclosure and from renters who want to buy but cannot get mortgages due to restricted credit banking practices following the 2008 real-estate bust.
Investors Seek Higher Returns
The U.S. homeownership rate today stands at 65.3 percent, the same as 20 years ago. However, because single-family rentals represent 10 percent or more of the housing market, lending and investment opportunities, still in their infancy, are immense. These properties offer 10 percent or higher yearly yields in rental income, and tidy profits when the homes are eventually sold. Funds set up by Blackstone, the world’s largest manager of alternative assets, and similar firms attract investor money because investors want higher returns while short-term interest rates remain close to zero. Most investors accumulating multiple properties are able to outbid and outmaneuver the average home buyer, because they pay in cash. As these multi-property investors race to the purchasing finish line, the typical American family needing a mortgage can’t compete. Among those feeling the pinch most sharply are minorities and young people.
Carolina Reid, an assistant professor specializing in housing at the University of California at Berkeley, said, “Homeownership remains the most important mechanism by which people build wealth in this country. Particularly for communities of color and low-income families, it’s basically the only way they build wealth.”
Investors “Serve Communities”
Arizona Congressman David Schweikert (R) believes investors are serving the communities by beautifying properties and providing more rental housing to residents. Schweikert also thinks some Americans are simply not cut out to own a home.
He said, “One of the things that created the collapse in 2008 was the arrogance of saying, ‘Everyone should be a homeowner. People move jobs and residences. It was a 1950s, 1960s mindset being pushed through policy in a population that was living differently. The person who offers the best price gets it. That’s actually how a market is supposed to work.”
True or false? Only time will tell.
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I am the CEO of EquiAlt: real estate based alternative investment firm with activities in equity, debt and private equity. Since 2008, EquiAlt's management has demonstrated a high level of competence in hundreds of distressed asset transactions, recapitalized companies while lending on landmark Las Vegas projects.
We understand that there are several strategies and goals in the area of real estate investing. Based on our experience, we offer education and offerings that are truly investment grade. Available products for investors range from totally passive to the traditional active.
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