And they are Only Growing
The term “institutional investor” wasn’t used frequently in the real estate industry prior to the COVID housing boom of 2020. Now, it’s a term I use almost daily when connecting with my buyer and seller clients about housing. For those of you that don’t know, an institutional investor in the real estate industry is a company that purchases homes for the purpose of investment by turning homes into rental properties. An institutional investor is essentially a large-scale landlord, who today, have become some of the largest holders of Real Estate in the United States.
The large-scale investors have a very simple approach: Purchase real estate in growing and affordable areas and create rental properties to seek returns through rental income and equity growth. This approach has been around for decades, but it’s only recently been applied in such a large scale thanks to companies like Blackstone and Invitation Homes. It’s very important we take note of what these companies are doing and how it affects the entire real estate industry.
As these investors grow their holdings in the United States we have to start taking note of how this affects the regional real estate markets, especially here in the Charlotte Region and across the Carolinas. Institutional investors typically focus their efforts on affordable housing sectors with the highest potential for growth and ease of rental. This tends to be in popular areas with affordable housing options compared to the rest of the country. Essentially, this makes the Charlotte region a prime target for real estate investments as these investors now own over 40,000 homes in North Carolina. Not just that, but nearly 1/3 of homes sold in the Charlotte region go to investors.
Why this is NOT a good thing
Real estate investors and landlords have been around for generations, but never has a single entity owned such a large piece of the real estate market. As the entities search for properties to increase their holdings they drive home values up, which in turn increases rental prices. All costs surrounding housing increases significantly now that the costs can be controlled by a single entity.
As these investors are continuously looking to increase their real estate holdings, they become one of the largest competitors with your average family. As families go on the search for their first home it becomes nearly impossible to compete with companies offering quick, all cash closings. Not to mention that these investors focus primarily on affordable housing options that put them in direct competition with your average first or second time home buyer.
As these investors continue to acquire more properties, values continue to rise as regular buyers have to offer more to outbid and win against the investor buyer. This in turn increases values for everyone who own homes in the area, but also increases the equity gains for the large investors. Essentially, they now can control the cost of housing while continuing to realize gains from the equity growth and rental increases.
What if the market crashes
In the unlikely event that the real estate market takes a nosedive, these companies will likely go bankrupt, or come very close to it. But, so would many of US homeowners, so this isn’t wishful thinking. However, we must realize that as the companies begin to control more and more of the housing market the likelihood of a price adjustment becomes increasingly less likely. The issue is these institutional investors are backed by large corporations and Billions of dollars in investments which means their failures become far less feasible.
What does this mean for the long run
I have written article after article about the state of the market, interest rates, growth, best times to invest, how to purchase, how to sell, you name it. What ceases to amaze me after all this information I provide, how many still believe the market is going to correct and prices are going to come down. These investors are essentially fixing the market to benefit themselves and they are PRICING YOU OUT. If you think pricing is high now just wait until interest rates come down and more buyers return to the market along with these large investors.
Stop waiting for the market to change to go out and buy. Stop waiting for sellers to drop their prices and “hope” that you get a great deal. Stop renting and throwing your money away waiting for that perfect deal to come along when your lease ends. The chances that things just “fall into place” are so unlikely if you’re not paying attention and taking the right steps now.
I completely understand the affordability issue we are faced with today, but there are options. Negotiations with sellers to get interest rate buy downs, asking about assumable mortgages, looking at areas with 10-15 minute longer commutes, etc. There is so much more that can be done to make you successful in your dreams of buying a home than just waiting for things to get better. If there is anything that I can help you with regarding your real estate needs, I am just a phone call or email away. You can reach me at 980-250-2795 or Matt@briggsamerican.com.