Institutional and Cash Buyers Pull Back, Leaving More Room for Individual Investors
By Kerry Curry, Contributing Writer
Opportunities for residential real estate investors who finance their portfolios could be on the rise as institutional buyers pull back from the housing market and the share of all-cash purchases declines.
Cash buyers of residential real estate accounted for 31.8% of the for-sale residential housing market in the first quarter of 2016, down from 35.4% a year ago, according to RealtyTrac. The figure includes single-family homes and condos.
The share of institutional buyers of residential real estate has been on the decline for 11 consecutive quarters, RealtyTrac said. RealtyTrac defines an institutional investor as an entity that buys at least 10 single-family properties or condos in a calendar year. Institutional investors accounted for 2.6% of all single-family or condo sales in Q1, down from 3.4% in the year-ago period.
A myriad of reasons account for the pullback in cash and institutional buying:
- Institutional investors have been priced out of markets that they originally entered.
- The property types and prices that institutional buyers demand are in short supply in many markets.
- Institutional buyers have acquired a sufficient number of properties to reach their goals and objectives.
- Cash discounts aren’t as big as they used to be.
- Cash buyers have significant competition in certain markets, and are even paying a premium in some high-demand markets such as Seattle and San Francisco.
- Financing products geared specifically toward single-family real estate investors have opened up more options for financing.
- Competition among lenders to attract real estate investors has produced attractive products and opportunities.
Pullback opens doors for individual investors
For the individual residential investor who leverages their real estate portfolio with financing, these changes in the housing market can be viewed as positive developments.
“There’s less competition from institutional investors which should open up the door of opportunity for individual investors,” says Daren Blomquist, senior vice president at RealtyTrac.
“Some of these institutional investors have evolved as well,” Blomquist says. “They have no desire to take over the world and own every single investment property, but they see an opportunity in lending to individual investors who can then go out and buy more investment properties with tailored investor loan products,” he says.
Competition is also down from cash buyers who woo prospects with the promise of a quick and guaranteed cash sale, even if waiting for an investor to secure financing would mean a higher price for the seller’s property.
Overall, these changes spell opportunity for the residential real estate investor.
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