Industry experts say the potential profits are enormous. They compare the current home market to the commercial real estate market after the savings and loan bust of the late 1980s and early 1990s. Back then, early investors realized double-digit — and in some cases triple-digit — returns. Still, some question how long — and how far — these big investors can ride the market this time.
As the foreclosure crisis grinds on, knowledgeable, cash-rich investors are doing something that still gives many ordinary Americans pause: they are leaping headlong into the housing market. And not just into tricky mortgage investments, collateralized this or securitized that, but actual houses. A flurry of private-equity giants and hedge funds have spent billions of dollars to buy thousands of foreclosed single-family homes. They are purchasing them on the cheap through bank auctions, multiple listing services, short sales and bulk purchases from local investors in need of cash, with plans to fix up the properties, rent them out and watch their values soar as the industry rebounds. They have raised as much as $8 billion to invest, according to Jade Rahmani, an analyst at Keefe Bruyette & Woods.
By Janet Morrissey, Dec. 8, 2012 NYT