SFR Investors Pay Far Less Than Consumers For Houses

The catch phrase, “buying a home is a great investment” may well be true, and according to new data, it’s investors who are getting the biggest bang for their purchases.

Investors pay for most of their purchases with cash and are typically paying less for homes than consumer homebuyers, a new report by RealtyTrac finds. 

Investors across the country paid an average of 29.4% less than consumers in Q2 2021 with a median purchase price of $205,000 for investors compared to $290,230 for all home purchases, the report, which used ATTOM home sales data, found. According to the analysis:

In Q2 2021, among the 38 states with full reporting data for this metric, including the District of Columbia, investors paid less than the state median sale price in all but these five states in which they paid at or more than the state median:

• Vermont: average 34% premium over state median (numbers artificially inflated due to a single sale of a high-priced property)
• California: average 3.3% premium over state median
• Massachusetts: average 3.0% premium over state median
• Washington: average 1.0% premium over state median
• Nevada: investors paid, on average, the same as the state median sale price

States with the highest purchase discounts for investor properties as of Q2 2021 include:

• Arkansas: 76.9% discount
• Michigan: 60.0% discount
• Louisiana: 55.5% discount
• Nebraska: 55% discount
• West Virginia: 51% discount
• Oklahoma: 50.3% discount

“A misconception is that investors are overpaying for properties, making it difficult for consumers to compete and artificially driving up prices,” RealtyTrac Executive Vice President Rick Sharga said in prepared remarks.

“But successful investors tend to look for below-market pricing in order to make a profit on their purchases. And many of them buy properties with cash, which gives them a chance to get properties at a discount.”

Investors continue to pay with cash in a majority of cases and typically see even greater price discounts for all-cash purchases. 

In Q2 2021, 79% of all investor purchases were cash sales compared with 69% in Q2 2020, a year-over-year increase of 10 percentage points. Cash purchases accounted for more than 50% of all investor purchases in every state, including the District of Columbia, except for one – Alaska – in Q2 of 2021. This compares with Q2 2020 when cash purchases accounted for more than 50% of all investor purchases in only 41 states with 10 states at less than 50% in cash purchases.

Investor purchases accounted for 15.4% of all home purchases nationally in Q2 2021 compared with 11.5% in Q2 2020 – a year-over-year increase of 3.9 percentage points – according to the Fall 2021 report from RealtyTrac.

“Historically, investors have always accounted for somewhere between 10% and 15% of residential home purchases, and our data shows that this is still the case today, albeit at the high end of that range,” Sharga said. “But the data doesn’t support the ‘Wall Street is buying up Main Street’ theme that’s been a popular theory for the past year or so.”