Distressed Homes Attract Private Equity Funds

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Dec. 20 (Bloomberg) -- Realtytrac's Darren Blomquist discusses investors who buy and then rent out homes with Betty Liu on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Groups -- like stone in particular -- how much do they make all of this?

And the numbers work out for them.

They are buying homes below $200,000, and on paper at least, when they are buying these properties, it looks good.

They are renting them out at rates where they are getting yields of upwards of 10%, gross yields on these properties.

But isn't it a lot of work to get that high in the return?

It is.

That is the big wild card in question, i think.

These companies have been very good at acquiring the properties and the massive number of foreclosures that have been available over the last couple of years have made the process of acquisition easy, but now they're real work comes, i think, with the management of the properties.

That is what we look at in the report is little bit, the expense ratios on these homes vary widely even neighborhood to neighborhood and market to market, and you are dealing with a wide variety of properties across -- even if they are in a fairly condensed geographic area, it is a lot harder to manage of those vanities a 500 unit apartment building.

Mike mckee, i like -- like in it to short sellers -- thanks god for a short sellers coming.

The buyers have an impact in the falling housing market?

Very small impact.

It has not been used but it has been helpful.

We had an enormous overhang of homes of the shadow inventory, those in foreclosure or about the going for closure.

When you have more supply, prices go down.

The fact some of these things are being taken off the price for everybody.

Including houses were people have not had payments for months -- connecting the hardaways to blackstone did blackstone does not have anything to do with the fact they cannot make their mortgage.

They are swooping the properties that in most cases were going to be vacant.

In a lot of cities, with nobody living in the houses, it blanks out lots of property values.

The debt many of these companies are using to buy the housing, is there actual interest rate risk for these groups like blackstone where they are locked in an investment depending on a very low interest rate environment that will not happen forever?

It is fairly interest-rate sensitive.

I think as interest rates go up it is going to change their strategy.

But really they are in this -- at least they say they are in it for a 5-7 year window and thus far they have been purchasing in markets that have the added benefit of very strong appreciation.

Laces like phoenix and las vegas.

Atlanta has become the new hotspot.

Aren't there some places, though, where we have seen lots of foreclosures -- i'm thinking illinois, for instance -- where they are not doing this?

Yes, the prime market for buying these homes is places that have a lot of newer foreclosures.

Robert is built in 1990 or later.

-- properties built in 1990 or later.

I think these operators will will move to places like illinois as they run out of inventory, they will move to the secondary markets like illinois.

But so far we have seen most of the activity in the west and now moving to the southeast.

Mike, i wonder if some of these arms are doing this to the point where they think the rate -- working now but not working in the future.

Where it will not be economically -- economical anymore.

To get the kind of yield they are talking about you will have to pay the kind of rock item prices -- this was really hot a few years ago.

This would have been a better investment a few years ago the now.

Thank you so much, mike mckee and daren from realty trac.

Coming up just trying to keep government snoop out of your business.

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