9 Jul This Is Why You’re Missing Out on Deals

Imagine this scenario: You’re feeling out a market before you settle down and buy. For now, renting is the way to go. You look up single-family homes for rent in your area and find a dream wrapped in three bedrooms, a big yard for the dogs and even a treehouse for the kids. It’s perfect. Except you’re not renting it from a landlord, you’re renting it from a big corporation that owns dozens of other properties in the area. Yikes.  

As it turns out, that scene is far from fiction, and the latest market stats show institutional investors are snapping up single-family homes faster than you can say, “Hey that could’ve been my deal.”

Still not convinced? Observe:

● While new home sales really didn’t stall during the pandemic (we all know the market is booming), institutional buyers were quiet for the past year, unsure exactly how closures might affect their bottom line. Now they’re back and cash flush, ready to close in on the single-family home market. According to Redfin, investments from institutional and business investors were up 2.7% year over year in the first quarter of 2021. 

● In the past six months, institutional buyers increased their spending to a record $77 billion, compared with $55 billion during the same time period last year.

● Cerberus Capital Management and other related entities purchased 200+ homes in Q1 2021 through online home flippers. Most of these homes never even hit the market. (Also noteworthy: Cerberus manages about $53 billion in assets and operates more than 24,000 rental properties.)

● Institutional buyers have increased their spending to a record $77 billion in the last six months. 

● In the first quarter of 2021, 21% of Opendoor sales were from entities that bought multiple properties (A.K.A. institutional investors). At Offerpad, 16% came from what can rightly be attributed to institutional buying, says PropertyRadar, and at Zillow, 9% of the company’s sales came from institutional buyers.

● As Bloomberg reports, investment companies including JPMorgan Chase & Co., Nuveen Real Estate and Brookfield Asset Management Inc. put aside billions of dollars to invest in single-family rental properties in the past 15 months. 

The concept of Wall Street buying up Main Street (or the homes on Main Street) is far from novel. It was popular back in 2008 after the financial crisis saw foreclosed properties scattered across the country. Firms purchased these properties at a 30 to 50 percent discount with the aim of renting them. And now, the practice has evolved. The New York Times reported that by 2016, 95 percent of the distressed mortgages on record by Fannie Mae and Freddie Mac were “auctioned off to Wall Street investors without any meaningful stipulations, creating a tantalizing new asset class: the single-family-rental home.”

This isn’t exactly a David vs. Goliath story (OK, so maybe it is) but it’s a huge issue for smaller buyers whose offers pale in comparison to institutional buyers’ all cash deals and aggressive approach. Institutional buyers threaten not just smaller investors though; they’re threatening the very fabric of American homeownership. If single-family homes become financial fodder for firms, and institutional buying becomes the go-to, easy way to sell at scale for home builders and developers, where does that leave the rest of us?

The question has yet to be answered, in part because the smaller investors never had a way to compete. (More on that soon.)  Plus, the housing market is already tight, and institutional buying is making it tighter. In April, U.S. new home sales fell 5.9%, due in large part to a lack of inventory. With so few homes on the market, especially in the more affordable price ranges, institutional buying threatens every investor unattached to a billion-dollar fund or brand.

“We’re in a housing shortage, and whatever inventory institutional landlords are gobbling up means there’s less available for first-time buyers,” said Lawrence Yun, chief economist at the National Association of REALTORS® in an interview with Bloomberg.

One more issue and then let’s move to the solution: Institutional investors often have complex systems in place to help them identify markets ripe for investment. The data they collect allows them to snap up the off-market deals and dominate a given territory.  Through iBuyer platforms, they can easily estimate values, identify potential deals and make quick offers to home sellers who put out any sort of feelers about selling their property.

Ah, now time for the investing bright spot: Privy. Our platform is a way to fight back against the institutional buying that’s been steadily increasing throughout 2021. We have the off-market data you need to compete with institutional buyers today. Armed with this knowledge, you can fight back against an ever-squeezed market to open the doors for new investment properties wide open, ready and waiting just for you.