Although real estate prices are currently breaking records, that is not stopping real estate investors from jumping headlong into the fray and buying up properties at a breathtaking pace.
According to Redfin, investor home purchases rose 3% in the second quarter, with these savvy buyers snapping up one in six homes on the market. In total, they paid a staggering $43 billion—nearly 14% more than last year.
The big hit: single-family homes.
Investors can’t get enough of them, with these properties making up 69% of their purchases. But they’re not just after the luxury properties – investors are also targeting the lower end of the market, snapping up one in four affordable homes.
And what is their plan? Many will likely hold on to these homes to capitalize on the rental boom.
Rents for single-family homes have skyrocketed during the pandemic, and even though the situation has cooled somewhat, the market is still bubbly.
CoreLogic’s index showed single-family rents rose 3.2% year-over-year in May, the highest growth rate since April 2022, suggesting that rent growth may be returning to pre-pandemic pace.
Investors were out in full force during the pandemic, but a combination of astronomical prices, rising interest rates and tighter financing options had sidelined some in recent years.
But now the tide is turning. “One reason real estate investors are coming out of hibernation is to capitalize on strong demand from renters,” said Sheharyar Bokhari, senior economist at Redfin. He noted that many investors, especially those who can pay cash, are seizing the opportunity to avoid high mortgage rates while capitalizing on rental demand.
The California real estate market is currently in a mixed mood. Financial guru Robert Kiyosaki recently sounded the alarm, telling Fox Business that California is “on the verge of bankruptcy.”
But the numbers tell a different story. Investors are flocking to the West, with San Jose and Las Vegas leading the way – in both cities, investor purchases rose by 27 percent. In Sin City, more than 22 percent of the homes sold were bought by investors.
California dominated the top five markets for investor growth, with Sacramento, Los Angeles and San Francisco all making the list. Redfin reported that San Jose and San Francisco were also among the cities where overall home sales increased the most, with San Jose seeing a 15% increase.
This could allay fears that layoffs at major technology companies would permanently damage these markets.
The low sales of condos at huge discounts and the current real estate crash in San Francisco, which the Washington Post has already reported on, have meant that many investors now have deep pockets to profit from the crisis.
Craig Pellegrini, a Redfin agent in San Jose, said about a quarter of the buyers he speaks with are a mix of institutional and retail investors.
“There are a lot of people with money from the tech industry who bought homes here in the early 2000s, built up a lot of equity and are now looking for a side job as a real estate investor,” Pellegrini said. He added that others rent in expensive neighborhoods like Mountain View and Los Altos but buy investment properties in cheaper areas like San Jose to build equity.
In Florida, however, the situation is mixed. Miami and Fort Lauderdale have seen a decline in investor activity, but Miami still leads the region with the highest investor activity – nearly 29% of homes sold were purchased by investors.
And it pays off. Investors make big profits, only 5% of the shares are sold at a loss.
The typical investor made a profit of 58% over the original purchase price.
The biggest winners?
Investors in Philadelphia, where median gains reached a whopping 133%. Even in high-priced markets like San Francisco, investors are making big gains, with a typical home selling for $685,000 more than originally paid.
