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The Real Winners Of The Real Estate Business

WS

America has become a renter nation, and Wall Street is loving it.

More households are renting than at any point in 50 years, thanks mostly to the cataclysmic housing bust of a decade ago. Nearly 37 percent of households now rent compared to 31 percent in 2006, while home ownership has remained relatively flat. You would need to go back to 1965 to find a time when home rentals were that high.

Meanwhile, Wall Street is confident that this trend will persist, with financiers who loaded up on homes at pennies to the dollar at the height of the crisis now rushing to buy even more despite home prices being at all-time highs. And they are not your typical home investors-- sovereign-wealth funds, hedge funds, insurance companies, pensions and asset managers are all piling in for a piece of the action.

Investors purchased 29,000 homes in 2017, a massive 60 percent increase compared to the previous year according to real estate investment firm, Amherst Capital Management LLC. That also marked the first time in five years that investors purchased a disproportionately large number of homes in a single year.

Cashing In On the Rentals Boom

Large investors looking to profit from the home rentals boom are increasingly targeting wealthier tenants by securing single-family homes instead of apartments in places like Phoenix, Atlanta, and other fast-growing metros. Related: How Corporate America Is Filling The Gaps In Public Education

This demographic tends to have a couple of children and need more bedroom and living spaces than typical apartments can offer. They are also likely to be more willing to stick in one place and weather rental increases as long as it’s in a good school district.

Further, the economics favor single-homes over apartments--apartment numbers have risen significantly over the past couple of years thus driving down rental yields.

Pretium Partners LLC, an investment firm, has announced that it has raised $1 billion to add 26,000 rental units to its portfolio.

In markets where housing inventories cannot meet demand, investors are building new homes.

South Florida-based Transcendent Investment Management LLC has secured $250 million to build thousands of rental homes in Southeast Florida.

According to real estate data firm, ATTOM Data Solutions, rental home investments are growing fastest in Green Bay, Wisconsin; Sevierville, Tennessee; Anchorage, Alaska; Myrtle Beach, South Carolina; Syracuse, New York and Charleston, West Virginia.

Renting Is The New Norm

The reason why more Americans are preferring to rent than buy is pretty straightforward—most (64 percent) live in counties where renting takes up a smaller portion of their paychecks compared to buying. Yet the funny thing is that the median home price is actually cheaper than renting in 240 of 447 U.S. counties.

So why the contradiction?

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It’s all about getting the best bang for your buck. With a strong jobs market, people want to stay mobile since most cannot afford houses near urban centers where they are likely to get higher-wage jobs.

Further, the  Republican tax bill has complicated the whole buying vs. renting calculus. Under the 2017 tax code, a three-member household with annual income of $150,000 would be better off buying if monthly rent exceeded $1,507.

Under the new tax code, however, the same family would have to be doling out $1,885 per month in house rent to make buying worthwhile. With the national average rent currently around $1,405 and growing at a fast but manageable clip of three percent per annum, it will take a couple of years before the math begins to favor home buying once again.

By Alex Kimani for Safehaven.com

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