Giant real estate funds are reportedly ramping up to sell securities backed by REOs they have converted into foreclosures. So how can wholesaling CEOs maintain their deal flow and client base in the face of this new competition and alternative investment choice?
This week Bloomberg reported on the giant Blackstone Group which has recently been spending around $100 million a week to snap up homes to be turned into rentals. Over the last 24 months this has reportedly totaled in the region of 40,000 homes and $7.5 billion in acquisitions.
Now the plan for Blackstone, as well as other REITs, hedge funds and private equity firms is rumored to be selling off securities backed by these rental homes and the income they are producing.
So how can wholesaling CEOs compete? How do you maintain volume wholesaling properties to individual investors to hold as rentals with all of the hard work that comes with buying, rehabbing and property management, when they could just buy into passive income producing trusts and real estate stocks?
Fortunately it is not all that grim. These new REITs and real estate stocks are probably not all they are cracked up to be, and it’s common knowledge that this vehicle is unproven.
Perhaps the biggest red flag is that some of the biggest firms have stopped taking on new acquisitions and have switched up strategies. This indicates that they have realized that their strategy may not have been prudent on the scale they planned and are searching for an exit.
For those wholesaling CEOs which have clients that are considering these types of investments there are several important factors to remind them of.
First off, and besides the reduced yields these investments have to return due to the size of the operations and number of parties involved, REITs and stocks are notoriously volatile. Their values and returns can go up and down on the whims of the market, with little downside protection.
Besides the security that direct investment and the product wholesalers have to offer stocks certainly are not as hands on rewarding and lack pride of ownership.
So is this a threat? No, not really at all, and certainly not something most will want to jump into. Those wholesaling CEOs with clients that want a more hands off investment vehicle can remind them that they can always fund you with their cash for flipping more houses.