Redfin: Investors are buying up homes in these hot markets

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Home prices have hit historic highs, but real estate investors are slamming in even as home affordability is holding some buyers back. Redfin reported that investor home purchases rose 3% year over year in the second quarter. They bought one in six homes for a total of $43 billion, up nearly 14% from a year ago.

Investors overwhelmingly preferred single-family homes, which accounted for 69% of purchases. They also targeted the lower end of the market, buying one in four inexpensive homes. Many of these investors may be holding those homes to rent them out. Single-family rental prices skyrocketed during the pandemic. They have since stabilized, but Corelogic’s index showed single-family rents rose 3.2% year-over-year in May, the highest growth rate since April 2022, reflecting that rental growth may now be returning to pre-pandemic levels. During the pandemic years, real estate investors were very active. A combination of high prices, rising interest rates and restrictive financing has discouraged some from getting involved in recent years.

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“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. “Investors, many of whom can afford to pay cash to avoid high mortgage rates, are capitalizing on that demand.”

Direct real estate investors aren’t the only ones who can benefit from the boom in single-family home rentals. Another option for real estate investors who don’t want to be landlords is to join the Jeff Bezos-backed platform Arrived Homes. Arrived Homes offers investors the opportunity to buy shares in individual properties in different markets, protecting themselves from downturns in a single market.

California’s rise?

Opinions about California have been mixed lately. Financial expert Robert Kiyosaki recently told Fox Business that California is a frontrunner and will “go bust,” but real estate investors seem to disagree. San Jose, California, along with Las Vegas, Nevada, were the largest markets where investor purchases increased by 27%. In Las Vegas, over 22% of homes sold were purchased by investors.

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The remaining five growth markets for investors were all California cities: Sacramento, Los Angeles and San Francisco. Redfin reported that San Jose and San Francisco were also the cities with the highest increases in home sales. In San Jose, sales increased by over 15%. This seems to allay some concerns that layoffs at the big tech companies would permanently decimate these markets.

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Craig Pellegrini, a Redfin agent in San Jose, said about a quarter of the buyers he talks to are a mix of institutional and retail investors. Some are out-of-state investors or real estate speculators, but others are smaller investors who know the area and are looking for a source of income. “There are a lot of people with tech capital who bought homes here in the early 2000s, built up a lot of equity and are now taking on a side job as a real estate investor. But there are also people who rent in neighborhoods like Mountain View and Los Altos and then buy investment properties in San Jose — where real estate prices are lower — to build equity.”

In Florida, the situation is mixed. Although Miami and Fort Lauderdale were among the cities with a decline in investor activity, Miami was the region with the highest investor activity – investors purchased 28.5% of the homes sold.

Investors are still making good profits from their home sales. Only 5% of homes sold at a loss, and the typical home sold for 58% more than the investor originally paid. The largest capital gain was seen by investors in Philadelphia, where they made an average gain of 133%. Higher-priced markets are still quite profitable. In San Francisco, the typical home an investor sold brought in $685,000 more than the investor paid for it.

You can benefit from real estate without owning property

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Investment platform Arrived Homes has created a private loan fund that provides access to a pool of short-term residential real estate-backed loans, with a target net annual return of 7 to 9 percent and is paid to investors monthly. And the best part? Unlike other private loan funds, the minimum investment in this fund is only $100.

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This article, “Redfin says investors are buying up homes in these hot markets,” originally appeared on Benzinga.com