I have been fortunate to work with some of the biggest investors in the country for more than a decade, serving in a variety of roles from advisor to banker to employee. The so-called “institutional investors,” large firms who manage billions in assets for the ultra-wealthy, university endowments, insurance companies, and pension funds (to name a few), are often vilified among the mom-and-pop investor set and in the media. However, watching them can teach anyone a great deal about how to analyze, acquire, finance, and manage investment properties.

2018 was as good a year as any to watch their strategy and operations evolve. Over the course of the year, institutional investors continued to double-down on their bet on residential real estate that they have been playing since the housing crash. The large, publicly traded investment firms and billion-dollar private equity firms are more firmly ensconced than ever in the housing sector and, with that position, they have also become more clearly positioned in the public perspective. At one time, individual investors had a very knee-jerk response to the presence of institutional investors in a market. Essentially, they tended to believe it meant their window of opportunity had closed.

However, it has become evident to many that there is a place in every asset class for investors of all sizes. Small investors may not be able to compete with large investors head-to-head on the same individual assets, but they can still find success purchasing different housing product (size, price, bedroom count, etc.) in the same market as well as being active in markets and submarkets that the institutional investors do not participate in. Remember, institutional investors own less than 2 percent of all SFR investment properties and they are active in less than 30 metro areas across the nation. That leaves a lot of room for everyone else!

Did You Know: Nearly 90 percent of the single-family residential (SFR) housing inventory is owned by people that own fewer than 10 units.

Evolution of Market Selection and Property Sourcing

2018 was a pivotal year for institutional investors as they reacted to changing market conditions and a lack of available inventory. This led to two distinct modifications for most large investors:

#1: They moved into new markets as they chased yields.

In 2012, institutional investors were making opportunistic purchases in markets that saw dramatic price declines during the recession. In 2018, as distressed inventory has dried up and yields have compressed in their original markets, they are looking at new markets that can provide them good cash-on-cash returns and possess scalability. Locations in Alabama, South Carolina, and Pennsylvania are seen as viable new markets for the largest investors.

#2: They were compelled to explore the expansion of their sourcing channels beyond the MLS and foreclosure auctions.

The advent of the iBuyer (OpenDoor, OfferPad, etc.) has opened the eyes of the institutional owners to consider new acquisition verticals such as working with the aforementioned iBuyers, purchasing newly built homes from builders, and carrying out their own direct marketing campaigns as methods to increase their holdings. This shift has also created a cottage industry of smaller, more nimble investors that buy, renovate, and stabilize small portfolios with the intent of selling them to the larger investors at a profit.

An Action Plan for the Individual Investor

As the market continues to shift, it is extremely important for individual investors to watch the institutional movement – where they are buying and what they are buying. This information is readily available from public filings and data providers such as RentRange and ATTOM Data Solutions. Even if you are investing in different markets, you should strongly consider the markets that possess the best chances for outsized returns. As I say frequently when I speak at conferences, opportunity doesn’t have a border, but if you want to make strategic decisions like a Wall Street investor, you have to put in the time and do the proper research.

I launched my own investment firm, Guardian Residential, intent on capitalizing on what I see as a very unique set of market conditions that will put continued demand on rentership for the foreseeable future. To that end, I’m constantly evaluating markets based on the following:

  • Creation of Value: Potential for development or revitalization of neighborhoods in sustainable ways while purchasing below market value.
  • Scalability: Understanding a market’s inventory levels and ability to scale that makes operations more efficient.
  • Product Demand: Job growth, household creation and low unemployment.
  • Supply Factors: Low supply of existing inventory and low building permit issuance relative to the number of jobs being created.
  • Affordability: Prices and rents don’t move in lockstep, so you’ll find more opportunities for yield at lower price points.


While all the factors above are fairly standard metrics for sophisticated investors, chances are you are not utilizing information on this on a daily basis to execute your strategy. While using data is a valuable tool that can help guide your decision making process, the most important thing all investors should learn from institutional investors is the value of discipline. Institutional investors may not have the same return thresholds that individual investors do, but they do have incredible discipline when it comes to sticking to those self-imposed thresholds. This makes them the perfect bellwether for a market, but you must remember that their goals are not the same as your goals.

For example, most institutional investors were buying during 2018 (and in general) without assuming any future appreciation on their purchases. Most individual investors, even if they say they were not looking for appreciation, bought this past year with the basic expectation of it. As a result, now that the inventory is tighter and the appreciation rate is slowing and leveling off in a lot of areas, the conversation is getting tense for individual investors who were hoping to flip properties that they are having to hold onto for longer than they anticipated. The institutional investor makes sure a property makes financial sense based on current figures on the day they buy it and small investors would do well to follow suit to minimize risk and build a stable portfolio.

Tags | Data
  • Dennis Cisterna III

    Dennis Cisterna is the founder and CEO of Guardian Residential, a private real estate investment firm. He is a monthly contributor to U.S. News & World Report, was named one of HousingWire’s “Rising Stars” in 2017, and was featured on the May 2018 cover of Think Realty Magazine. Learn more at GuardianSFR.com and reach Dennis at dcisterna@guardiansfr.com.

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