Private equity and investment firms in recent years have
bought up cheap real estatein markets hit hardest by the housing bust.
The goal here isn’t to “house flip,” but to rent out homes and take in steady income. The upshot, some argue, is that real buyers are squeezed out of the market by the big dogs.
Perennially fascinated by the goings-on in Manhattan’s “hip” sidekick Brooklyn, the New York Times has a story about how firms are doing this in the borough. And it means that normal people, including the Brooklyn hipsters the Times so loves to document, are getting pushed out of home ownership.
“I’d say by the spring, maybe 70% of the sales we were seeing were to hedge funds, investors and others taking advantage of what was happening in Brooklyn,” one real estate broker told the Times. “Only about 30 per cent were actual end users or first-time buyers.” From the Times:
While his fund has sold a few properties already, Mr. Dixon says the general idea is to hold onto the properties, deriving steady income from rents. Mr. Dixon says that in the early years, as the fund invests in homes, renovates them and rents them, he expects returns could average about 5 per cent each year. But as property values and rents increase, he estimates those returns could climb to 12 to 18 per cent annually.
Not bad! While the development in Brooklyn’s hotter areas like Williamsburg has been long chronicled, now hedge funds are buying up “dilapidated brownstones” farther out in the borough.