Large investors have always played an active role in the residential real estate market. These investors can act as stabilizers, buying homes with cash when prices dip and the credit markets tighten. However, they can also act as your competitor when you are trying to buy a home.
Purchases of single-family homes by investors at a record high
Led by large private equity groups Blackstone Group and Starwood Capital, investors have been playing a larger role than normal in the market. In 2018, investors purchased more than 11% of single-family homes in the United States, almost double the percentage from 2000. There are many reasons that investors are increasingly buying homes, but the two most popular are that interest rates are low and that consumer trends have shifted from owning to renting. The latter has allowed these investment groups to create an asset class out of residential homes.
The Wall Street Journal recently ran a piece about the effect institutional investors are having on millennials and first-time buyers. The article highlighted the struggles buyers are going through in the increasingly competitive markets around the US. For example, they interviewed Michael Burnett in Detroit who looked at 25 homes, bid on six of them, and won zero. The Burnett family tried everything to win these bids, including writing heartfelt letters about raising their daughters in the home but kept losing to cash offers.
Unfortunately, this isn't a one-off story. Many families are struggling to get into the home of their dreams and they are resorting to more than just heartfelt letters. Another common practice is to issue an escalation bid, where your promise to pay a fixed amount above the highest bid the seller receives. When these bids are higher than the home appraises for, buyers are offering to pay the difference out of pocket.
It doesn't have to be this way
UpEquity's mission is to level the playing field. We use our technology to write firm pre-approval letters that help first-time buyers compete against deep-pocketed institutional investors.