The
auction prices of homes climbed faster than rents in 2013, so returns
on investment dropped, according to a report from CoreLogic.
That’s
a change from the past several years. In many cities where mortgage
defaults spiked after the housing crash, investors were able to buy
foreclosed homes at prices so low they were able to make big rental
profits.
The practice is still profitable, but in many places not as much as it was.
“It’s
gotten so competitive that discounts at foreclosure are not where they
were,” said Daren Blomquist, spokesman for RealtyTrac. “It’s harder for
third party purchasers at auction to make a profit.”
According to CoreLogic, return on investment fell in eight of the 10 best buy-and-rent cities.
In Tampa, which was the top city in 2012, returns declined to a yield of 9.7% in 2013 from 10.5%.
The reason for the decline: An influx of institutional investors with money to spend at Tampa’s foreclosure auctions.
“It’s
much more difficult to get a return when prices have been pushed up,”
said Sean Galaris of financial services firm LM Funding, which is based
in Tampa.
The yield represents an investor’s rental profits divided by how much he spent to buy and rehabilitate the property.
Chicago was CoreLogic’s top market for investors in 2013, but the yield dropped to 9.9% from 10.4% in 2012.
In Orlando, yields fell to 9.4% from 10.3%. Atlanta returns went to 9.3% from 10.2%.
Only
two cities of CoreLogic’s top 10 recorded gains. Houston’s average
return rose to 8.8% from 8.5% and Charlotte’s inched up to 7.9% from
7.8%.
Nationally, homes sold in
foreclosure auctions now go for just 4% less than regular sales, down
from 16% in 2012, according to RealtyTrac’s Blomquist.
Home
prices in general have soared this year, jumping nearly 14% annually
through October, according to the latest S&P/Case-Shiller report.
And
rents have lagged. Census Bureau numbers show that rents only grew an
average of 2.2% during the first nine months of 2013, compared to the
same period in 2012.
As profits on foreclosures drop, investors will cut back on purchases.
Glenn
Plantone, a real estate investor in Las Vegas, said that there were
only 208 properties sold there at auction to third party purchasers —
not lenders — in October. That was the first time in six years that a
month had fewer than 300 of such sales.
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