24th July 2012

Wall Streets Hottest Investment Idea - Your House

All of a sudden, it seems, everyone on Wall Street wants a foreclosed home.

Your house might be a better investment than you think. At least Wall Street seems to think so.

For a while now the conventional wisdom on real estate has been that while home prices might not fall much more, they aren't likely to go up anytime soon either. The best personal finance advice, then, when it came to buying a house, was to buy as little as possible.

Apparently, though, on Wall Street that common wisdom about home prices is not held by all, or even many. In the past six months or so, a number of investment firms, hedge funds, private equity partnerships and real estate investors have turned into voracious buyers of single-family homes. And not just any homes, but foreclosures. Investment banks, who also want in on the action, are lining up financing options to keep the purchases going.

Take for instance private equity mega-firm Blackstone Group. About a year ago, when the NY Observer profiled the firm's head of real estate Jonathan Gray, there was no mention of single-family homes or even that the firm was looking to profit from a rebound in the residential real estate market.

Last week, Gray said Blackstone now owns 2,000 single-family homes. At $300 million, that might be small compared to Blackstone's overall real estate portfolio of about $50 billion. But it's one of the biggest piles of homes ever intentionally put together (banks and Fannie and Freddie are sitting on many more foreclosed homes, but that's a different story) by an institutional investor, and it's likely not the largest portfolio out there these days.

Buying up single-family homes as an investment is nothing new. It's what landlords do all the time. But landlords have always tended to be mom-and-pop outfits often not owning more than a few dozen units confined to one area. Large Real Estate Investment Trusts and private equity funds generally focused on apartment buildings and commercial real estate, like malls and office buildings. That appears to be changing.

Kenneth Rosen, a UC Berkeley professor who has a consulting firm that advises real estate investors, says he knows of two dozen investment funds in the process of buying up single family homes, a number of which are hoping to own as much as 10,000 homes around the country. He predicts there could be as many as a dozen public REITs in the next few years that are devoted to single family homes.

Source:  Fortune: 24th July 2012