What’s the Deal with Investment Companies Buying Houses?

By Realty Times Published Sep 24, 2021 10:46 am

There’s been a lot in the news lately about investment companies—namely big ones like BlackRock, going into communities and buying up all the properties. The home market has been explosive over the past year, with mortgage rates at historic lows and the pandemic leading many people to want to change their living environment all at once.

For middle and upper-income people, their incomes weren’t significantly affected by the pandemic, and the real change for them was that they gained more mobility and could perhaps leave big cities and continue working remotely for their employer.

That did drive prices up quite a bit and lead to bidding wars around the country.

There’s another factor at play too.

Wall Street is buying family homes, like BlackRock, but other companies are as well.

Pension funds, Wall Street banks, and investment firms are buying family properties not only in the U.S. but also Europe.

The reason?

There are many, but part of it has to do with the fact that they want alternative real estate investments to their retail and commercial properties, which may take a long time to recover from the pandemic, if ever at all.

With remote work looking like it’s here to stay, however, the pandemic and the ripple effects could keep the demand for suburban family homes high.

Another factor in the mix with this current situation is that Millennials and younger Americans are more interested in renting than buying a home. They might not want the commitment to one location, for example, or the upkeep that comes with homeownership.

Home purchases from investors went up 2.7% year-over-year in the first quarter of 2021.

Investors bought around one in every seven homes in the first quarter of this year.

For single-family homes purchased by investors, there was a 4.8% increase year-over-year in the first quarter. Investors also retain the most significant market share in multifamily properties, having bought nearly 26% of those during the first quarter in the U.S.

Investors see that it’s a good buying opportunity since there’s a growing shortage of homes throughout the country. With limited inventory, many families are going with rentals instead.

Investors have the cash available to buy up the homes quickly and easily, and then they can turn around and rent them to individuals or families who can’t find a home or who maybe can’t afford one.

For these investors, real estate is one of the few safe havens in an incredibly uncertain world.

The unfortunate effects are being felt by lower- and middle-class people, however.

First, many people are reluctant to sell their home now because they’re afraid they might not afford another, meaning further limitations on inventory. Lower-income people have also tended to lose their jobs more often during the pandemic or see declines in income that are pricing them out of homeownership.

Investors are buying everything, including lower-priced homes. One of every five lower-priced homes sold in the U.S. during the first quarter was purchased by an investor.

Cities where investors have shown particular interest include Miami, where investor purchases make up nearly 24% of transactions, Atlanta, Jacksonville, and Charlotte.

Young families and individuals are competing with hundreds of firms, including not only names like BlackRock but also tech startups, rental platforms, and money managers. There are bidding wars across the board.

Unless something changes, there are likely to be serious ramifications of this for years to come because homeownership is the primary vehicle to build wealth.

When priced out of buying a home and being forced to rent, your landlord can also potentially be a big investment firm. That means there may be weaker protections in place, and you don’t have the comfort that you get with a small landlord as far as maintenance and rent stability.

How this ends up is anyone’s guess, but undoubtedly there is a severe squeeze being felt around the country as lower-, middle- and even upper-class people try to buy homes and find that it’s not feasible for them right now.