The Blackstone Effect

By Eddie Speed, Editor, REal Income Alert

Today, investors are pouring cash into the real-estate market at an incredible pace. I saw a recent study from those smart financial guys over at Goldman Sachs, and they estimated that almost 60% of all real-estate transactions are now conducted in cash. They should know. It’s theirinvestment firm buddies doing most of the buying.

Over the past six years our real-estate market has gone through some major changes. Back in 2008, less than 20% of real-estate transactions were conducted in cash. Imagine that, a 40% jump!

Here’s the problem with this… most real-estate investors haven’t recognized that things have changed. They still haven’t pulled their heads out of the sand and really looked at how the industry has been reshaped.

So for the next three weeks, I’m going to focus on the three biggest trends I see in the real-estate industry today. Let’s start with this one…

Money is No Object for Some Buyers

Clearly, cash buyers constitute a majority of the real-estate purchase activity in the U.S. They’re predominantly private equity firms, foreign investors, and other private investors looking for alternatives to the stock market.

Over the last few years, private equity firms and hedge funds — especially ones like Blackstone, Carrington and Colony Capital — have purchased tens of thousands of homes. And they’re busy raising more capital — we’re talking billions of dollars — to continue fueling this pace of purchasing.

The problem is these guys are concerned only with volume. They’re buying anything and everything they can get their hands on, and it’s caused a serious drain on the supply of available houses.

The crazy part is that their actions are driving prices up. They’re basically making themselves pay more in the end. And they don’t care! They have no qualms about paying well above market value just to amass inventory.

Unfortunately, ordinary homeowners and investors end up getting the short end of the stick because of these artificially inflated home prices.

While this trend of aggressive — some might even say reckless — cash buying is likely to have peaked, the effect on supply will linger for quite a while. At least until the economy improves and more homeowners (not investors) start buying again.

Until then, steer clear of buying real-estate owned (REO) and foreclosed property. Right now, that’s not the smart thing to do. You simply can’t compete with giants like Blackstone. That, of course, is the big reason I advocate getting in the game much earlier in the process by buying the actual note on the property at a discount.

Why Winners Keep Winning (And Losers Keep Losing)

If “buy-and-hold” and the notion that you can’t beat the market have left you short of your personal and retirement goals, then you’re going to want to hear the truth about passive and active investing.

Chances are, if you’re more than 25 years old, you think it’s impossible to “beat the market!”

But today, there is MORE than ample evidence that proves:

  • The stock market is NOT perfectly efficient
  • Passive investing can be MORE risky than active investing

You CAN beat the market… you just need to use the right strategy!

Get your own FREE copy of the latest report from Chief Investment Analysts, Adam O’Dell, “Why Winners Keep Winning (And Losers Keep Losing)”

Click to Learn More
Categories: Housing Market

About Author