Good Yield Is So Hard To Find
Institutional investors are already finding it hard to acquire properties at good prices. Most players are chasing the same properties in the same cities, creating bidding wars that automatically lower potential yield. Properties can be purchased in bulk only in places where there is abundant supply of foreclosed homes, so almost all players in the business are actively bidding in cities such as Phoenix, Las Vegas, Atlanta, Tampa and parts of California, which is why we are seeing a strong rebound in home prices in these markets.
Most players need to limit their buying to a few cities simply for operational reasons. Managing a widely-dispersed group of single-family homes is an operational nightmare. In the case of multi-family homes, a number of units are clustered into a single building, lowering the cost of maintenance. But imagine having to handle, say, the plumbing issues of a thousand homes spread all across Atlanta. "You need a management infrastructure that is much more diffused[in the case of single-family homes]," said Aronson. The attorney believes operational difficulties will ultimately trip up bulk investors who lack experience in property management. "People who rent don't take anywhere near the care of a house compared to those who own." Many big investors are working with property management companies, but that means they are likely giving up some of the yield to management fees. Others are building their own management infrastructure, but that is going to take time to scale up.