Investors are finding it more and more difficult to buy foreclosures in bulk and then rent them out for a sizable profit. Home prices have risen faster than rent and it’s chipping away at investors’ returns on investment, according to a new report from CoreLogic.
Following the housing crash, investors were buying up foreclosed homes in bulk at bargain prices and cashing in on rental profit returns. In some areas of the country, the strategy is still proving profitable, but in a growing number of areas, investors are seeing their profits aren’t what they once were.
Return on investment dropped in eight of the ten best buy-and-rent cities, according to CoreLogic. For example, in Tampa — once the top city for returns in 2012 — investor returns slipped to a yield of 9.7% in 2013 from 10.5% in 2012.
Chicago was the top market for investors in 2013, but the city also posted a decrease in returns from 10.4% in 2012 to 9.9% in 2013. Orlando yields dropped from 10.3% to 9.4%, and Atlanta saw returns go from 10.2% to 9.3%.
“It’s gotten so competitive that discounts at foreclosure are not where they were,” says Daren Blomquist, spokesman for RealtyTrac. “It’s harder for third-party purchasers at auction to make a profit.”
The only two cities that CoreLogic found in its top ten that recorded gains in 2013 were Houston — where average returns increased from 8.5% to 8.8% — and Charlotte, which posted gains from 7.8% to 7.9%.
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