Home Price Appreciation Gives Institutional Investors Incentive to ‘Cash Out’

While statistics show that few institutional investors involved in the single-family rental market have sold off their inventory in large quantities, that might be about to change due to strong home price appreciation in the last few years, according to data released byRealtyTrac on Wednesday.

The possibility of a high return on investment has given institutional investors the opportunity and motivation to cash out, leaving many to wonder about the future of the single-family rental industry and how it would be affected in areas with a high concentration of single-family homes purchased as rentals, should investors sell off in large quantities.

To examine the return on investment institutional investors could receive by selling off now, RealtyTrac analyzed more than 200,000 purchases made by institutional investors (defined as homebuyers who made 10 or more purchases in a calendar year) made during a two-and-a-half year period from January 2012 to August 2014.

The average purchase price of those 200,000 properties was $167,556, and those properties have a current estimated value of $211,897, which would result in a gained equity of 26 percent (a combined total of $8.9 billion) if all of these properties were sold today, according to RealtyTrac. Homes purchased during 2012 would result in the greatest return on investment, ranging from 38 to 43 percent, depending on the month purchased, RealtyTrac reported.

The top five states with the highest potential percentage of gained equity return on investment for the past three years are Delaware (63 percent), California (47 percent), New Hampshire (44 percent), Oregon (42 percent), and New York (39 percent), according to RealtyTrac. The top five states for the highest potential total dollar value in gained equity on institutional investor purchases were California ($1.9 billion), Florida ($1.4 billion), Georgia ($662 million), Arizona ($546 million), and Illinois ($486 million).

Four of the top five metro areas with the highest potential percentage of gained equity return on investment for the past three years, out of those metro areas with at least 1,000 institutional investor purchases during that period, located in California: San Francisco (63 percent), Portland (50 percent), San Diego (47 percent), Los Angeles (46 percent), and Riverside-San Bernardino (46 percent), according to RealtyTrac. The five metro areas with the highest potential dollar value in gained equity for institutional investor purchases during that period were Miami ($611 million), Atlanta ($609 million), Los Angeles ($568 million), Phoenix ($512 million), and Chicago ($464 million).

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