Passive Income: Renewed Confidence Inspires Surge in Single-Family Rental Investing

Real Estate News: Real Estate Investing Podcast

Investor interest in single-family rentals is making a post-COVID comeback. A new report by Redfin shows an increase in the purchase of single-family homes by investors after three straight quarters of declines during the pandemic.

Redfin says there was a 2.7% increase in the number of homes bought by investors during the first quarter of this year. That’s about 1 in every 7 homes compared to about 1 in every 10 homes during the previous three quarters.

Cautious Approach During Pandemic

Redfin says that investors held back at the beginning of the pandemic and were slow to jump back in. Even though the housing market recovered quickly, many investors took a more cautious approach because of job losses, unpaid rents, and the eviction moratorium.

Redfin’s senior economist, Sheharyar Bokhari says: “Investors are likely starting to feel more comfortable because the economy is in recovery mode.” And, they may also see the declining inventory of homes as an opportunity because a lot of families who’d like to buy a home will end up renting. He says many investors have the cash and can easily add these homes to their portfolios.

Real Estate More of a Safe Haven

Redfin’s chief economist, Daryl Fairweather, calls it “a relatively safe bet right now.” If you’ve been following the stock market, you know that it’s been extremely volatile. Even with home prices rising as fast as they have, real estate has been more of a safe haven than the stock market. And the higher-priced homes are getting a lot of that attention.

Redfin says that the purchase of expensive homes by investors was up almost 20% year-over-year in the first quarter, while the purchase of mid-priced homes was only up 12.7%. Low-priced homes were up 9.2%. That last number may have something to do with the lack of inventory at the lower price levels. Home prices for those three tiers average about $429,000 for expensive, $272,000 for mid-priced, and $184,000 for affordable.

Bidding Wars for Luxury Homes

Getting an even bigger piece of the pie are luxury homes. Redfin says there was a 41% increase in the purchase of luxury homes by investors year-over-year in quarter one. Those are homes selling for an average of almost a million dollars. The National Association of Realtors’ chief economist, Lawrence Yun, says there’s more activity at the upper end because there’s less of an inventory problem. But it’s also very competitive. A recent article in SFGate talks about bidding wars in the San Francisco East Bay and said that homes are often selling for $1 million over asking.

Investors Buy 1 in 5 Affordable Homes

But Redfin says while the biggest jump in purchase activity among investors occurred at the upper end, the largest share of homes purchased by investors was at the lower end. In just that part of the market, 1 in 5 single-family homes sold in the U.S. was bought by an investor.

Miami topped the list of cities with the largest market share of single-family homes purchased by investors. Atlanta was next, followed by Jacksonville, Charlotte, Las Vegas, and Phoenix.

Interest in Smaller Markets Growing

The report confirms investor interest in smaller markets is growing. It says: “In recent years, investors and individual homebuyers alike have crowded into mid-sized cities that are more affordable than major hubs like San Francisco and New York. This trend has been accelerated by the pandemic, with so many Americans suddenly able to work from anywhere. These markets have become increasingly competitive for buyers.”

You’ll find links to those reports in the notes for this episode at NewsForInvestors.com

Links

1 - https://www.prnewswire.com/news-releases/investor-home-purchases-rise-for-first-time-in-a-year-as-us-economy-bounces-back-301294921.html

2 - https://www.housingwire.com/articles/investors-are-buying-up-single-family-homes-across-the-us/