High real estate prices are dissuading institutional investors from buying homes on Long Island.
In Suffolk County, home purchases by institutional investors -- that is, those buying 10 or more homes in a year -- made up 1.78 percent of the residential real estate market from 2011 through 2013, according to a report released by RealtyTrac. The share was even lower in Nassau County, where just 0.9 percent of home purchases during the same period were made by institutional investors.
By contrast, 6.1 percent of home sales nationwide from 2011 through 2013 were to institutional investors.
The main reason for the disparity is the high price of homes on Long Island, said Daren Blomquist, vice president at RealtyTrac.
In December, the median home price in Suffolk County was $337,500, and in Nassau County it was $420,000, RealtyTrac reported. Investors typically try to purchase homes for less than $200,000, Blomquist said.
"They're doing a simple calculation of purchase price to rental rates, and the higher the purchase price the less that equation makes sense," he said.
Long Island's reputation for strict rules governing rentals also makes the region "less desirable" to investors, Blomquist said.
In addition to home prices being higher on the Island than in many other regions, labor and materials also cost more, said Chris DiJorio, co-owner of DB2 Properties LLC, a year-old real estate investment firm in Stony Brook that buys properties, renovates them and resells them.
"The margins are a little tighter here; it's a much more competitive workplace," DiJorio said.
New York's court oversight of foreclosures also limits the supply of distressed homes, whereas in states such as Arizona foreclosures do not require a judge's approval, DiJorio said. It takes 1,029 days to foreclose on a home in New York, the longest period in the country, according to RealtyTrac.
Nationally, the biggest buyers -- including the Blackstone Group, Colony Capital LLC and American Homes 4 Rent -- purchase "thousands or even tens of thousands of homes," Blomquist said. "They are, by and large, just holding on, at least for now, and renting them out."
Smaller investors are more likely to fix homes up and resell them rather than renting them, he said.
Investors can help housing markets by adding to demand and repairing dilapidated homes, Blomquist said.