Individual investors are gaining ground as large institutional buyers pull back from all-cash home purchases. Experts say this trend could level the playing field for everyday homebuyers.
According to a report issued by Realtor.com, the number of institutional investors who bought with cash fell to 64% in the first quarter, down from a peak of 69.7% in late 2021 and the lowest level since 2008. At the same time, individual investors – those who have purchased 10 or fewer homes since 2001 – now account for 62.6% of investor purchases, the highest share on record.
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“It’s better for everyone involved that institutional money is withdrawing from the single-family home space,” G. Brian Davis, a real estate investor and co-founder of property management software SparkRental, said to Realtor.com. “It creates less artificial demand among buyers, therefore reducing some upward pressure on prices. It also leaves room for mom-and-pop investors to operate.”
The change is coming as overall investor activity remains elevated compared to pre-pandemic levels. In the first quarter, investors accounted for 14.8% of home purchases, the highest share on record, even as total home sales fell to their lowest level in more than a decade.
The rise of individual investors might reflect broader changes in attitudes toward real estate investment and financing. Brie Schmidt, owner and managing broker of Second City Real Estate in Chicago, told Realtor.com that nine out of 10 transactions she sees now involve ‘mom-and-pop’ investors more likely to use financing.
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“If an investment property in your market costs $200,000, you can buy one in all cash or put 20% down and buy five properties with the same amount of money,” Schmidt explained to Realtor.com. “It makes sense to maximize your capital and acquire more cash-flowing properties through financing.”
Realtor.com noted that the trend also aligns with the growing popularity of the FIRE (Financial Independence, Retire Early) movement, which advocates for leveraging real estate investments to build wealth and fund early retirement.
While cash offers are losing some of their luster, they remain popular in certain markets. Portland-South Portland, ME, Albuquerque, NM, and Toledo, OH, topped the list of metros with the highest share of all-cash investor purchases in the first quarter, exceeding 80%.
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The shift away from all-cash purchases isn’t limited to investors, though. The share of non-investor buyers using all-cash offers has been growing since early 2021, hitting over 33% in the first quarter. The report noted that the increase is likely driven by high levels of home equity and elevated interest rates, which make cash purchases more attractive for those who can afford them.
Some real estate professionals see advantages in the current environment. Robert Dodson, sales manager and broker at Charles Burt Realtors in Missouri told Realtor.com that financing could give buyers more time for due diligence.
“Financing tends to create a longer timeline for closing,” Dodson told Realtor.com. “This allows buyers more due diligence periods for inspections, appraisal, and property data review, affording the investor the opportunity to become more educated on the asset.”
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This article Big Cash Bidders Retreat, Small Investors Rise: It’s ‘Better for Everyone,’ Real Estate Executive Says originally appeared on Benzinga.com
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