JPMorgan offers clients real estate rental products


The rush by private equity firms to set up funds that buy distressed retail real estate properties, hoping to rent them out at nice profits before selling the units for even nicer profits in the future, was strong last year. So strong that one had to wonder if the market was overbought already. I speculated that some late-comer funds might be forced to return investment funds to limited partners at some point.

The issue became relevant again with the news that JPMorgan Chase will offer wealth management clients the chance to invest in a partnership that has bought more than 5,000 single family homes to rent in Florida, Arizona, Nevada and California, according to Bloomberg.

The article notes that, "Investors can expect returns of as much as 8 percent annually from rental income as well as part of the profits when the homes are sold."

JPMorgan "started pooling investments from its clients in mid- 2012 into a partnership to purchase distressed properties, betting that prices will rise over the next several years and provide investors with income from renters along the way…The firm uses a third-party manager to find homes, buy and manage them, he said, declining to name the firm. The goal is to sell the houses within three to four years in one of three ways: through an initial public offering of a real estate investment trust, a sale to an existing REIT or to an institutional buyer such as a pension fund." 

Is this a wise retail investment for clients now?

Home values are on the rise, and there's lots of competition from other funds. But there hopefully is still time to realize the massive profits every one predicted. The trend in terms of rental income may not be as favorable as home ownership comes back into vogue. The biggest gains may be from selling the property sooner than expected.

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- here's the article