Why Small Investors Are Beating Wall Street in Real Estate | The Build 2 Rent Advantage

The speaker, Alvin Taveras, president and CEO of Build2Rent, discusses why small investors are continuing to buy properties while larger institutional funds are slowing their acquisitions. He outlines four main reasons: Lending Terms: Smaller investors can secure more favorable loan terms, sometimes as low as 3.75% or 5.5% for DSCR loans, which are better than the rates larger institutions typically receive. Too Many Institutional Funds and Poor Evaluations: During the COVID-19 pandemic, too many institutional funds and syndications gathered funds and bought properties based on poor evaluations, anticipating continued 20% rent growth and quick flips. Many of these groups were "squalidized," leading individual investors to realize they can get better deals themselves. Additionally, institutional funds often involve management fees (typically 2% of the fund) that are paid regardless of performance, and multiple layers of managers, which cut into profits. Time Horizon and Direct Ownership Benefits: Mom-and-pop investors typically have longer time horizons (10 to 20 years), allowing them to benefit from market appreciation, tax depreciation (especially bonus depreciation), cash flow, and debt paydown. Direct ownership provides more control over tax strategies and avoids the middlemen fees associated with REITs or syndications. Institutional Focus on Bigger, Struggling Deals: