Real Estate Investor Cash Home Purchases on the Rise

Real estate investor purchases accounted for 16.4% of all home purchases nationally in Q3 2021 compared with 11.7% in Q3 2020, a year-over-year increase of just over 40 percent, according to RealtyTrac.

The increase in investor purchase activity was national in scope as all but five states saw increases in the percentage of investor purchases among all home sales from Q3 2020 to Q3 2021. Alaska, Delaware, Iowa, Nebraska and Vermont were the only states to show a decrease in real estate investor purchases during that period.

Investors continue to pay with cash in a majority of cases, with the share of all-cash purchases among investors increasing. In Q3 2021, 79.0% of all investor purchases were cash sales compared with 69.5% in Q3 2020, a year-over-year increase of 9.5 percentage points. 

Cash purchases accounted for more than 50% of all investor purchases in every state, other than Alaska, Wyoming and the District of Columbia.

Low Inventory Bring More Cash Offers

Residential buyers are also relying on cash offers to close a deal, especially in multiple offer situations, says Stacie Eagan Bender, agent, Sotheby’s International Realty, Rumson, NJ.

“With such limited inventory in Monmouth County, for example, buyers/agents are using everything in their toolbox to win homes,” Bender tells GlobeSt.com. “They are waiving financing, limiting home inspections to structural and environmental, waiving or limiting appraisals, and often offering sellers free or discounted rent backs.”

Cash offers are prevalent in any market experiencing limited inventory, she said.

“Cash offers are not specifically receiving discounts; however, they help buyers win the listings,” Bender said. “Again, it’s case by case with sellers; some see the value in eliminating a third-party lender, and some sellers will always take the highest offer. They don’t care where the financing comes from, especially if the buyer is financing and waiving the appraisal contingency.”

Realty Trac’s Investor Purchase Report measures the share of all single-family home sales purchased by investors, the average price discount of investor-purchased properties, and the share of all-cash sales. Investors purchase single-family homes in order to fix and flip the properties, or convert them into long-term rentals.

Q4 Overall Median Price Falls Compared to Q3

The RealtyTrac report, citing home sales data from ATTOM Data Solutions, also shows that investors across the country paid an average of 18.9% less than the overall median sale price in Q3 2021, with a median purchase price of $245,000 for investors compared to $302,000 for all home purchases. 

This average price discount is significantly lower than the discount in Q2 2021 when investors paid an average of 29.4% less.

The states with the highest average price discounts for investor properties as of Q3 2021 include:

• Arkansas: 76.7% discount
• West Virginia: 60.0% discount
• Michigan: 59.5% discount
• Louisiana: 51.5% discount
• Delaware: 47.9% discount

“As mortgage rates rise, investors benefit even more by being able to execute all-cash purchases,” RealtyTrac Executive Vice President Rick Sharga said in prepared remarks.

“Rising home prices and inflation make it difficult for investors to achieve their ROI objectives, but they make it even harder for the average consumer to afford to buy a property. So even though investor profit margins may be declining, it’s possible that we’ll continue to see the investor share of purchases increase over the next few quarters.”