Purchasing homes for conversion into rentals has long been the domain of local small investors. Over the past couple of years, the trend has become one of the most popular investment practices in the real estate market.
Recently, foreign companies have gotten into the mix. Like local investors, these firms are looking for high returns by renting out the home home and eventually selling it when the market improves more, and home prices increase.
Foreign Investors Often Benefit from Exchanging Currency
One major advantage for foreign investors, especially those from countries with strong currencies, is that they’re willing to outbid U.S. investors as they hope to profit from foreign-exchange rate fluctuations. On the strength of a particular nation’s currency, homes can be surprisingly inexpensive for some foreign investors.
Overall, interest in the U.S. rental market has been rising for many foreign investors, including those in Canada. One Canadian single-family rental investment organization has spent upwards of $150 million in the acquisition of nearly 2,000 homes in the Western U.S., North Carolina and Florida.
Interest in single-family houses from foreign investors has been gaining steam since December when the first U.S. based single-family rental firm went public as a REIT (real estate investment trust). Over 5% of the REIT’s shares outstanding were controlled by foreign institutions.
The Conversation Around Foreign Investment in Rental Conversions
Foreign capital is subjected to the same criticism that large U.S. investors involved in the rental conversion market are dealing with. The complaint coming from some community groups and hyper local investors is that owners are far less than diligent regarding home maintenance and pushing out local home buyers and investors in particular communities. They argue that the promise of renters lingering for long periods depresses values and increases the difficulty for people to recoup lost equity and stabilize communities.
Proponents of outside investment groups claim that they aid in market recovery. This occurs, they say, as investors help to work off excess inventory through transferring them to rentals while the demand for owner occupancy gains traction. Some firms are focusing on purchasing short sales for the most part. While they snatch up these and other discounted homes at extremely cheap prices, they don’t believe they are crowding out other home buyers, and are infact helping strengthen communities and local real estate markets.