The Expert Podcast

Do you think the real estate market is overvalued? Do you think we're in a bubble? Do you think it's going to crash? Well, these people don't.

This is a very high-valued hedge fund that is currently out there buying up homes as fast as they can. In fact, this company just bought 146 single-family homes in Jacksonville, Florida. This is a hedge fund with hundreds of millions of dollars in assets, and they acquired 146 rental homes in a community in Jacksonville. It's made by a joint venture between two sponsored funds, and these are investment funds with a $300 million credit facility.

Most of these homes—90%—were already occupied at the time of acquisition. These are rental homes. What is the significance of this event? What this means is that there is smart money—at least big money—continuing to go into the residential real estate market even in spite of the fact that the prices have gone up.

Florida is one of the biggest increases in the country. It's not like Florida is an undervalued or a sleeper geographic area. Florida has seen some of the biggest increases. On top of that, as of June 27, 2022, there are major hedge funds and major investors pouring hundreds of millions of dollars into residential real estate.

Look, they have to. They're betting the farm on this. This is not somebody who's just speculating on, "Well, I think I want to live here. I love this house. I'm willing to pay more." This isn't somebody who needs a roof over their head. This is somebody who, for them, the only reason for doing it is numbers, dollars, and cents.

They're doing the math. They don't care how nice the countertops are or how pretty the backyard is. They don't imagine their kids playing with the dog next to the palm tree in the front yard. This company is buying these houses strictly on numbers, and their analysis is saying that the numbers are worth putting money into right now.

Sure, they're going to make rental income from this, but they wouldn't do it if they didn't think the value was still going to be there. If you rent these houses out, even with a rental return, at some point you have to sell them. If you sell them for a loss, that could wipe out your rental income. So, they figure it's still a good deal.

It also could figure that they're thinking that the rental dollar amounts are too low, and they might jack up the rents. In spite of the fact that, from a gut level, many people think real estate's overvalued, it's going to crash, we're in a bubble, it has to—what goes up must come down—2008, all those factors, behind the scenes, there's still a lot of money pouring into real estate at very high levels.

Could they be stupid? Sure. There's been lots of big money that has gone into stuff that's blown up—Enron, Bernie Madoff. A lot of things have blown up that were big money putting into it. But this isn't the only story like this.

We've seen this movie before. There are a lot of communities that are being bought up and a lot of money going into residential real estate in spite of the increase in prices.