Yes, Blackstone is not a dummy but there are mom-and-pop investors who think otherwise. I don’t think this is because of they “add the most value with the least cost and downtime and extract the most profit.” Many long-time mom-and-pop investors can do that as well and they know the local market better. But I think this is because Blackstone seems to be buying a segment of rental property market that is not the traditional “rental property” material. Like the other thread on “nightmare renting to people in a low income area”, mom-and-pop investors seem to focus on the traditional aspects of valuing a property, such as cap rate, gross rent multiplier, etc.
From what I read, the hedge funds have slightly different focus to avoid competition. They focus on bigger property (3000sqft rather than 1200 sqft), somewhat nicer property, and perhaps in somewhat nicer neighborhood. They are buying those houses that mom-and-pop investors would say “there is no way I can make the number work” but at the same time, those are also below replacement costs or 50%+ off properties. So clearly, hedge funds are thinking about their exit strategy few years from now when new constructions will start again and housing market again is healthy, while mom-and-pop investors typically don’t. They will be happy to labor hard to earn the yearly rents.
Maybe when everything settled down few years from now and we look back in history, they may be able to teach us something. Of course, mom-and-pop investors probably still lack the ability to analyze the potential appreciation yield, the economics of scale to execute, and have different investment motive.
But then again, there is also the possibility that the hedge funds really lack the experience of buying rental properties so they may be foolish in the end. I don’t bet on it though.
