Investor buying of condos and single-family homes peaked nearly a decade ago when prices were well below pre-pandemic rates and strong rental demand supported buy-to-rent market activity. According to the CalculatedRisk Newsletter, demographics are now favorable for buying homes, but new house hunters are squaring off against investors who are able to obtain financing at lower rates.
Strong demand within the rental market incentivizes investors to purchase homes at virtually any price for a profitable turnover, but if interest rates rise or rental demand declines, investor buying could slow in the 2022 market.
Here is an interesting press release from November: KBRA Assigns Preliminary Ratings to Progress Residential 2021-SFR10
“Progress 2021-SFR10 is a single-borrower, single-family rental (SFR) securitization that will be collateralized by a $823.5 million loan secured by first priority mortgages on 3,836 income-producing single-family homes. …
The aggregate BPO value of the underlying homes is $827.6 million, yielding an LTV of 99.5% … KBRA adjusted the BPOs, which yielded an aggregate value of $786.2 million. This represents a 5.0% haircut to the nominal BPO value. The resulting LTV based on KBRA’s adjusted BPO value was 104.7%.”
That is a 105% LTV (loan-to-value) based on BPOs (Broker Price Opinions - not appraisals). With this kind of financing, investors are incentivized to buy at almost any price. The buyers of the security are counting on the cash flow from renting those 3,836 homes. But what if demand for rentals soften?
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