Podcast host Nikki Hynes lost out on her dream home last summer. Despite offering $15,000 above listing price, the sellers instead chose an investor — one offering all-cash and a lightning-fast, 14-day closing timeline.
“We were devastated,” Hynes says. “We also began to worry that we wouldn’t be able to find a home if we were going in $15K over and getting beat out by cash offers. It’s very tough to compete with those.”
Hynes’ story is becoming a common one in today’s competitive market. For-sale inventory is down 40% compared to pre-pandemic days, and over three-quarters of buyers found themselves in a bidding war at one point last year. Increasingly often, cash-flush investors were on the winning side of those battles, upping the ante in an already high-stakes market.
According to data firm CoreLogic , investors made 27% of all single-family home purchases in the first three quarters of 2021 — up from just 17% at the end of 2019. What’s more: These investors largely focus on the lower- and mid-priced end of the market, meaning first-time homebuyers feel the brunt of their activity.
“Even before the boom of investors, the American homebuyer had already been facing an uphill battle,” says Christian Wallace, head of real estate services at Better. “When you add in the deep pockets of Wall Street firms, homebuyers won’t stand a chance.”
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Today’s real estate investors come in many forms. There are home flippers, small- and large-scale landlords, Wall Street-backed institutions, and, more recently, iBuyers — a kind of online home buying company that purchases, fixes up and then resells properties in short order. (Opendoor and Offerpad are examples of these. Zillow used to be .)
Though each has its own motivation for increasing investment volume this year, experts say it all boils down to seizing an opportunity.
“Investors have been chasing higher yields in a low-interest environment,” says Eric Maribojoc, a professor and director of the Center for Real Estate Entrepreneurship at George Mason University. “With single-family rents and home values increasing strongly in recent years, the returns on rental single-family homes have been attractive.”
It’s a succinct way to sum up the many drivers behind this trend.
As Maribojoc mentioned, home values are on the rise. According to the National Association of Realtors , the median price on U.S. homes clocked a 17% increase across 2021. The quick price growth offers major upside to home flippers and iBuyers who want to buy low, make a few improvements and sell high a few months down the road.
Mortgage rates , which until recently, have hovered near historic lows, also factor in, and there’s inflation — which just notched its highest jump in 40 years, to think about too.
Real estate is generally considered a good hedge against inflation (its value and rent potential increases as prices rise), so during inflationary times, many investors see it as a safer bet than other options. As Thomas Malone, economist at CoreLogic, explains, “Both prices and rents have been surging, making housing a relatively more attractive investment than alternative assets.”
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Malone nods to this briefly, but rising home prices also play another role: They keep people renting longer, pushing up rents (and demand for rental properties) in the process.
According to Realtor.com, rents grew 19% between December 2020 and December 2021. This kind of growth is tempting for institutional investors, who made up 26% of all investor purchases last year — up from 14% a year prior.These deep-pocketed competitors — often representing a hedge fund, pension fund or real estate investment trust (REIT) — typically turn the owner-occupied homes they purchase into rentals, aiming to generate consistent returns for shareholders. The largest example of this type of company is Invitation Homes, which owns more than 80,000 rental homes.“Institutional investors, as a result of Covid, had to abandon investing in offices, retail, strip centers and hotels, as they were no longer safe harbors,” says Grant Cardone, CEO of Cardone Enterprises, an institutional investor based in Florida.Rentals, especially when combined with strong demand from millennials, have offered an increasingly lucrative alternative.“The largest cohort […]
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