Follow the Hedge Fund Money

big-moneyIt’s no secret that large institutional hedge funds, financed by Wall Street, have been gobbling up single-family rental properties across the U.S. as fast as they can write offers — particularly in “hardest hit” states such as California, Florida, Arizona & Nevada.  Operating on a 7-10 year horizon, their strategy has been to buy and hold these properties generating 6-8% unlevered returns in rental income and then capitalize on the appreciation when the market has recovered.  It was certainly a good strategy about a year ago.  But this is changing rapidly….

In many of these hardest hit states, prices have risen so quickly in the last 12 months that hedge funds no longer see the value in investing in single-family homes and are looking elsewhere for greater returns (read non-performing notes).  While they haven’t stopped buying completely, no longer are you seeing hedge funds outbid first time buyers (almost recklessly) but instead buy more selectively where greater returns are still possible.

There’s a good article reporting the latest trends of most of the big hedge funds at the following link:

What does that mean for Los Angeles-based realtors and real estate investors?

You better take notice.  It should tell you (if you didn’t know already) that our crazed real estate market here in L.A. (and in other hardest hit states) is on very unsteady ground and likely to head a bit South for the Winter when the Spring/Summer rush ends.  With the economy still struggling and the stock market artificially inflated by companies increasing their dividend returns to keep their stock prices high, you can’t expect the real estate market to sustain the pricing pace it has during the last year based solely on low inventory levels.  It’s not going to happen folks.  Watch the signs, follow the BIG money, ignore the real estate media hype, and remember to THINK and you’ll do just fine.