As big institutional investors pull back from all-cash home purchases, individual investors are gaining ground, a trend that experts say could level the playing field for everyday home buyers.
According to a report published by Realtor.com, the number of institutional buyers who paid cash fell to 64% in the first quarter from a peak of 69.7% in the second half of 2021, the lowest level since 2008. At the same time, individual investors who have purchased 10 or fewer homes since 2001 now account for 62.6% of investor purchases, the highest percentage on record.
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“Institutional investors withdrawing from the single-family home market is a good thing for everyone involved,” G. Brian Davis, real estate investor and co-founder of property management software SparkRental, told Realtor.com. “It reduces artificial demand among buyers, which relieves some of the upward pressure on prices. It also creates more room for private investors to operate.”
The shift comes as overall investor activity remains strong compared to pre-pandemic levels: Investors accounted for 14.8% of home purchases in the first quarter, their highest share on record, even as total home sales fell to the lowest in more than a decade.
The rise of private investors may reflect a broader change in attitudes toward real estate investing and lending: Bree Schmidt, owner and managing broker at Second City Real Estate in Chicago, told Realtor.com that nine out of 10 transactions she sees today are from “mom and pop” investors, who are more likely to use financing.
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“If an investment property in your market is priced at $200,000, you could buy one with cash, or put down 20 percent and buy five properties for the same amount,” Schmidt explained to Realtor.com. “It makes sense to maximize your capital and acquire a higher cash-flowing property through financing.”
Realtor.com noted that this trend also coincides with the growing popularity of the FIRE (Financial Independence, Retire Early) movement, which advocates using real estate investment to build wealth and fund early retirement.
Though cash buying has lost some of its appeal, it remains popular in certain markets: Portland-South Portland, Maine, Albuquerque, New Mexico, and Toledo, Ohio, led the metro areas with the highest percentage of purchases made by cash-only investors in the first quarter, exceeding 80 percent.
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But the shift away from cash buying isn't just limited to investors: The share of non-investors looking to buy with cash has increased since the beginning of 2021, reaching over 33% in the first quarter. The report attributes this increase to high levels of home equity and rising interest rates, making cash buying more attractive for those with the means.
Some real estate professionals are seeing benefits in the current environment: Robert Dodson, sales manager and broker for Charles Burt Realtors in Missouri, told Realtor.com that financing allows buyers more time for due diligence.
“Financing tends to extend the time it takes to close,” Dodson told Realtor.com. “This allows buyers a longer due diligence period for inspections, appraisals and review of property data, and gives investors a chance to learn more about the property.”
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