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Housing prices have hit an all-time high, but real estate investors are pouncing even as home affordability pushes some buyers to the sidelines. Redfin reported that investor home purchases were up 3% year over year during the second quarter, buying one out of every six homes for a total of $43 billion, an increase of nearly 14% year over year.
Investors overwhelmingly preferred single-family homes, which made up 69% of purchases. They have also been targeting the lower end of the market, buying one out of every four low-priced homes. Many of these investors may be holding these homes to rent out. Single-family rental prices soared during the pandemic. They have stabilized since then, but Corelogic’s index showed that single-family rents rose by 3.2% year over year in May, the highest rate of growth since April 2022, and reflected that rent growth may now be pacing to where it was before the pandemic. During the pandemic years, real estate investors were highly active. A combination of high prices, soaring interest rates, and restrictive financing have kept some on the sidelines in recent years.
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"One reason real estate investors are coming out of hibernation is to take advantage of robust demand from renters," said Redfin Senior Economist Sheharyar Bokhari. "Investors, many of whom can afford to pay in cash to avoid the sting of high mortgage rates, are cashing in on that demand."
Direct real estate investors are not the only ones who can experience the benefits of the single-family rental boom. Another option for real estate investors who don't want to be landlords is to participate in the Jeff Bezos-backed platform Arrived Homes. Arrived Homes gives investors the opportunity to buy shares in individual properties across a variety of markets, thereby protecting them from downturns in any single market.
California Rising?
Opinions on California have been mixed lately. Financial expert Robert Kiyosaki recently told Fox Business that California is a bellwether and that it is "going bust," but real estate investors don't seem to agree. San Jose, CA, was tied with Las Vegas, NV, as the top market where investor purchases were up by 27%. In Las Vegas, over 22% of homes sold were bought by investors.
The rest of the top five growth markets for investors were all California cities: Sacramento, Los Angeles, and San Francisco. Redfin reported that San Jose and San Francisco were also the top cities where overall home sales rose. San Jose sales were up over 15%. This seems to ease some concerns that layoffs from Big Tech companies would permanently decimate these markets.
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Craig Pellegrini, a Redfin agent in San Jose, said about one-quarter of buyers he speaks to are a mix of institutional and individual investors. Some are overseas investors or home flippers, but others are smaller investors who know the area and are looking for an income stream. "There are a lot of folks with tech money who bought homes here in the early 2000s, built a ton of equity, and are now taking on a side hustle as a real estate investor. But there are also folks who are renting in neighborhoods like Mountain View and Los Altos, and then buying investment properties in San Jose – which has lower home prices – to build equity."
The Florida story is mixed. Although Miami and Fort Lauderdale were two of the cities with a decline in investor activity, Miami was the area with the highest percentage of investor activity – investors bought 28.5% of homes that sold.
Investors are still receiving healthy profits from their home sales. Just 5% sold for a loss, and the typical home went for 58% more than the investor paid originally. The biggest capital gain was achieved by investors in Philadelphia, where investors saw a median gain of 133%. Higher-priced markets are still quite profitable. In San Francisco, the typical home sold by an investor brought in $685,000 more than the investor paid for it.
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The Arrived Homes investment platform has created a Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
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This article Redfin Says Investors Are Gobbling Up Homes In These Hot Markets originally appeared on Benzinga.com