Homes 4 Rent, a company based on the West Coast, recently purchased in excess of 130 homes in Charlotte and Raleigh as part of its homebuying spree across the country in which it is buying thousands of homes in an effort to take advantage of rising prices. The current market has been found favorable for companies like Homes 4 Rent to purchase foreclosures and other houses in order to make profits in rent; however, the acquisition and selling of houses at such a large quantity in a concentrated area gives a false perception of the market and may be risky. Entities that plan on establishing a business of this nature may face similar circumstances.
The rapid rise in homes being purchased gives a false illusion of a higher value in the housing market. One of two scenarios may occur: The money that comes from investors in the residential market may not continue to keep up with the current trend, or the market may take a steep dive once companies like Homes 4 Rent sell all of their houses in lieu of lower-risk investments.
What the trend boils down to is that the acquisition of homes in a concentrated area that does not have excess houses for purchase by regular buyers suffers risk. This is because regular buyers are not present to offset the false illusion of market value, which is what creates the bubble. If and when companies like Homes 4 Rent wish to recover these industrial investments and sell, the market in a particular area would drastically fall. This is also known as the bubble “bursting.”
After the country experienced such a large bubble burst in the housing market, it is difficult to speculate the outcome of the current trend. As such, it poses a risk to those who have invested in the current market, and risks are greater when less is known. However, with the assistance of a business law attorney, an entity looking to make investments in the housing market may be able to make better informed decisions and avoid risky transactions.
Source: The Mecklenburg Times, “California company buys Charlotte, Raleigh-area homes,” Feb. 25, 2013