Wednesday, January 24, 2018

New Form of House Flipping

Remember all those real estate articles on "Flippers?" Well, they're back in a new form and maybe even more dangerous for real estate and our economy.
Entry Level Real Estate
After the housing crisis of 2008, big institutions like BlackStone began buying distressed properties. Their buying power all but eliminated the individual investor who bought the same properties to rehab and offer to the market. These small investors are still out there, but they have turned their attention to the upscale market. Home builders have also left the entry residential market for the upper middle class and high end buyers. There was a vacuum in the market for entry level homes. This space is being filled by a host of firms in a new cottage industry. The leader in the field is HomeUnion.
This company offers the retail investor, individuals like you and me, a way to invest in real estate like institutions. They purchased low end housing, do rehab, find a renter, lease and manage the property. Then, they seek us. In their spiel, they remind you that stocks fluctuate up and down and dividends can be cut. However, a lease guarantees a consistent cash flow that allows you a better return and easier management of your funds. They can perform all these tasks for you with property across the nation - for a fee. They say that they are against home flipping and suggest investors keep the property long term. Dear reader, did you notice that this company offers many services, but all at a cost? Fees. This sent my mind back to the 49ers. No, I know my team stinks, but in 1849, the people who really struck gold were the ones who sold shovels and equipment to miners. They mined the miners and this new cottage industry is mining investors for gold. They are flipping to YOU!
are jumping on board too. RentRange provided the same concept as HomeUnion. They are now apart of Altisource as they were acquired. Investability is another firm that is becoming a force in the field. They provide for a fee their contact list of investors so buyers can sell or exchange properties all over the nation. This is a nice caveat for a buyer who in his long term outlook, is thinking of retiring to a state where he has investment property. With that said and at a time in our economy where job security is a thing of the past, this is a dangerous choice for an individual investor. There are a litany of problems with home ownership and with property out of your living district only compounds the risks. First off, tenants, especially young people, fail to pay the rent. They can split in the middle of the night with nothing but a deposit to which you have to pay a fee. In addition, roofs leak, refrigerators go on the blink, grass needs to be cut or walkways shoveled from snow. Do you see what is happening here? You are the prospector that is being mined for gold. These firms are flipping to YOU!
HomeUnion is so successful that they are thinking about going public. They are expanding their mine to include stocks. Hey, it's your choice, and with the Fed about to raise rates, that is another risk to the list.