Why does Wall Street want to buy your house?

How to invest in U.S. real estate like a Wall Street Investment Bank with America Mortgages

Goldman Sachs, Blackrock, JP Morgan, Vanguard, Fidelity – There are new players in the U.S. real estate game — multibillion-dollar Wall Street hedge funds and cash-flush investors — buying up properties and pushing regular homebuyers out of the market with aggressive buying and rental tactics. Investors and hedge funds currently own roughly 80,000 single-family homes in the Las Vegas area alone, which is about 14% of the county’s housing stock of 563,000, according to Shawn McCoy, director of UNLV’s Lied Center for Real Estate. Some prime targets that are appealing to these investors are growing Sunbelt cities like Las Vegas and Phoenix and other secondary markets such as Charlotte, North Carolina, Atlanta, and various cities in Florida.

“From mid-2020, when interest rates started going up, hedge funds bought up a ton of properties and immediately turned them into rentals, pricing out local buyers,” says industry experts. “Now a big portion of our homes are owned by investors.” Institutional investors may control 40% of U.S. single-family rental homes by 2030, according to MetLife Investment Management. 

These funds pay top dollar to some of the smartest and brightest analysts in the world before spending billions of dollars. This should be a sign for all real estate investors to research, learn, and follow. Currently, investors target single-family “starter homes” below the median home sale price of $447,435, sometimes renting out to the same demographic they outbid for the properties, which further tightens supply and increases rental yield.

The reason for the specific areas targeted is that prices in some Sun Belt markets have outpaced national figures for rent inflation, according to research compiled by Zumper. Between January 2020 and January 2023, rents for a two-bed detached home increased about 44% in Tampa, Florida, 43% in Phoenix, and 35% near Atlanta. That’s compared with a 24% increase nationwide.

The realm of real estate investment is perpetually influenced by various economic factors, among which interest rates wield a substantial impact. Contrary to conventional wisdom, sophisticated investors often perceive high-interest rate periods as opportune moments to delve into the U.S. real estate market. This seemingly counterintuitive strategy is rooted in several compelling reasons that highlight the advantages and potential opportunities for astute investors.

1. Enhanced Bargaining Power

During high-interest rate environments, the housing market commonly experiences a slowdown. As a result, property sellers might be more amenable to negotiations, leading to a potential reduction in property prices. Sophisticated investors with the financial acumen and liquidity or access to high LTV mortgage lending (more than 65%) can capitalize on these conditions to acquire real estate assets at lower costs compared to periods of lower interest rates.

2. Favorable Cap Rates

High-interest rate environments often translate to higher capitalization rates (cap rates) for real estate investments. Properties with higher cap rates tend to generate more substantial income relative to the property’s cost. This can be especially appealing to sophisticated investors seeking income-generating assets, such as rental properties or commercial real estate, as they can yield greater returns on their investment.

3. Hedging Against Inflation

Real estate has historically served as a hedge against inflation. When interest rates are high, inflation is often a concern. Real assets like real estate tend to retain or increase their value over time, thereby shielding investors from the erosive effects of inflation. Experienced investors understand the value of having tangible assets in their portfolio that can safeguard against inflationary pressures.

4. Long-Term Investment Perspective

Many investors in real estate often adopt a long-term view. While high interest rates might seem daunting in the short term, they can take advantage of locking in fixed-rate loans, thereby securing a consistent interest rate over an extended period. This stability safeguards against potential future rate hikes and provides a reliable cost structure for the investment’s lifetime.

5. Risk Mitigation and Diversification

Diversification is a key principle in investment strategy. High interest rate periods may deter other forms of investment, making real estate a comparatively safer harbor. Investors who have been in the market for a while recognize the importance of diversifying their portfolio to mitigate risk, and real estate, particularly during high-interest rate climates, can be an integral component in a well-balanced investment strategy.

6. Other People’s Money, aka Leverage

Having access to leverage makes sense in every way – Capital efficiency, Tax benefits, Risk management, and Preservation of liquidity. As a Foreign National or U.S. Expat with America Mortgages, you can access bank leverage with LTVs up to 80%, even without U.S. credit. Qualify based on the property’s rental income, making the process easier and more accessible. It’s smart underwriting, as these properties should be treated as a pure commercial transaction. 

7. Buy now and refinance later

In a well-balanced investment strategy, investors will go into a higher investment environment with the concept of “buy now and refinance later.” Global real estate investors recognize the unique flexibility of U.S. mortgages. Whether you’re 19 or 99 years old, you can secure a 30-year or 40-year amortization, making financing options readily available.

It’s a buyer’s market, as many novice real estate investors and owner-occupied buyers are sitting on the sideline waiting for interest rates to go down. What will that likely mean? Rates decrease, inventory is limited, buying power increases = FOMO (fear of missing out) – real estate prices will increase and increase quickly. 

Final Thoughts

In essence, while high-interest rate periods might initially appear as a deterrent to real estate investment, sophisticated investors perceive these periods as windows of opportunity. Their ability to leverage market conditions, negotiate favorable deals, capitalize on higher cap rates, hedge against inflation, and adopt a long-term perspective with high LTV leverage distinguishes them in the real estate investment landscape. 

Ultimately, the allure of U.S. real estate for experienced investors during high-interest rate periods lies in their capability to recognize and harness the unique advantages and opportunities that such environments offer. By employing smart financial strategies and seeing beyond short-term challenges, these investors position themselves to reap long-term rewards in the ever-evolving world of real estate investment.

Why does Wall Street want to buy your house? Now you know why!

We Understand Foreign National and U.S. Expat Mortgages Better Than Anyone

As a company, 100% of America Mortgages’ clients are living and working abroad while obtaining a U.S. mortgage loan. This is all we do, and no one does it better. “Would you take your Porsche to a Mazda dealership to get your car fixed?” states Robert Chadwick, CEO of America Mortgages. “Then why would you take a purchase 10x more to a broker or bank that doesn’t understand the complexities of non-resident lending?” 

America Mortgages is the leading expert in U.S. mortgage lending. For a no-obligation consultation with one of our globally based U.S. mortgage loan officers, please use this 24/7 calendar link. With U.S. loan officers in 12 countries, we work in your time zone and in your language.