(WHTM) — Buying a home can be tough. For a long time, it was a seller’s market with demand for homes high and not enough supply. That’s starting to ease up, but now there is another obstacle.
If you’re looking to buy a home, you may have some competition, and not just from other families looking to settle down. Investors are swooping in and snatching up houses, too.
“Those investors have actually gotten to be such a large piece of the pie,” said Jake Clopton, president of finance company Clopton Capital. “Now like 19-20% of all homes sold in the U.S. are sold to investors for the sole purpose of being rented out, so that pushes everybody out of the rest of the market that otherwise would be owning and buying a home.”
Clopton says these investors range from a single person buying a home to rent it out to large corporations doing the same.
“Because these investors have different financing routes and different pools of capital, they can buy these houses cash, they pay all cash in a couple of days with no contingencies, and then they refinance it out later on, so it’s really hard for some guy or some family to be competitive in that process,” Clopton explained.
Investors are swooping in on these homes for many reasons, Clopton said, and one of them is that the returns are good. It also feeds a cycle that benefits the investors.
“The more investors go in and the more families and other people get pushed out, where do they get pushed out to? They go into the rental pool. Because of that, the rental pool gets more competitive, and then because of that, rents go up,” Clopton said.
While higher prices and rising mortgage rates can deter the average buyer from getting a home, they have little effect on investors.
“Even if rates at a certain level are high for a family, they might not be so for an investor. And also, these large companies and large private equity firms have access to much cheaper capital than you or I do,” Clopton said.
These are smart investments because no matter what, people need a place to live. “Recessions don’t cure the need for housing. You could still very well see rents rise throughout whatever we’re going to get here as the Fed raises rates,” Clopton said.
In the meantime, if you’re in the market right now, you may have to make some concessions. Clopton also says that if you’re looking to buy a home, don’t get into bidding wars because you’re much more likely to overpay if you do that.
Clopton says not to rush into buying a home just because it’s available, consider expanding your search, and be patient.