Investing in real estate is booming, with more homes being sold to investors than ever before. Need proof? Investors bought 90,215 homes in the third quarter of 2021, totaling $63.6 billion.

In the third quarter of 2021,  investors made up 18% of home sales, up from 11% from last year at this time, according to analysis by Redfin. And because rents are at an all-time high, much of those investment homes will be used as rental property.

Two people standing at a countertop with a laptop and phone, checking numbers on new investments.

Image Source: Getty images.

Single-family homes are hot

Single-family homes (SFRs) are the gold standard these days, making up 74.4% of all the investor purchases, the highest percentage on record. And while SFRs are becoming more popular with investors, condos are falling out of favor. 

Only 16.9% of investor purchases in the third quarter of 2021 were condos, down from 19.8% from the third quarter of 2020. Many analysts explain this shift as being due to the pandemic, which fueled demand for larger homes since people started working from home and spending more time at home in general with lockdowns and travel restrictions. But with a return to the office post-pandemic, particularly in large, urban areas, there should be an increased demand for condos in 2022. Both townhouse purchases (5.4%) and multifamily purchases (3.4%) remained constant year over year.

Investors who buy SFRs have traditionally focused on lower-price homes. The cap rate on those homes is usually the most favorable. And lower-priced homes are still the most popular, with 36.1% of investor purchases. But that figure is down considerably from last year's 47%. High-priced homes are down slightly from last year. They made up 30.8% of investor purchases this year and 32.3% last year. One category grew significantly this year from last year: middle-priced homes. Those represented 33% of sales this year, up from 20.8% last year.

The categories of lower-, middle-, and high-priced homes vary by region. Low-priced homes are in the bottom third of local prices, mid-priced homes are in the middle third, and high-priced homes are in the top third of the local market. The typical cost of homes purchased by investors across the country during Q3 2021 was $438,770, which is 5.3% higher than what investors spent last year.

Home and rent prices increased 

Part of the reason investors are spending more is because housing prices have risen. And the reason prices have risen is due to a severe housing shortage coupled with a great demand for housing. Investors with the cash to buy property -- which make up most (76.8%) of these transactions -- are seizing this opportunity to make potentially huge profits. By getting in now, investors with cash are beating out first-time homebuyers who can't afford the increased price of entry and are instead renting -- and at higher rent prices.

Home prices are up 13.9% year over year from September 2020 to September 2021, and during that time rents increased 10.7%, which represents the fastest rent growth in two years.

Another growth category that fits with this trend of would-be first-time homebuyers staying or becoming renters instead is the build-to-rent phenomenon -- neighborhoods of single-family homes that are built as rental property. There's been a 30% increase of this asset class from 2019 to 2020.

Where investors are buying homes

Not all investors are buying single-family homes as rentals. Some are flipping, which is another reason for the shift to buying middle-priced homes. There's been a trend since the pandemic of people moving from expensive cities to more affordable locales. This group can afford the middle-tier versus the lower-tier homes in more affordable cities.

The top cities investors are buying in:

Atlanta, Georgia, tops the list, with 32% of homes sold in Q3 2021 being sold to investors. Atlanta also experienced the largest gain year over year. Last year at this time, investor sales were 12.9%, which represents a 19.1% increase.

Phoenix, Arizona, comes in second, with investors at 31.7%. This is up 17.7% from last year, the third-highest increase.

Charlotte, North Carolina, comes in third at 31.5%. This represents the second highest increase in investor sales from last year -- an 18.2% increase.

Jacksonville, Florida, comes in fourth at 28.3%. This is up 15.2% from last year.

Miami, Florida, comes in fifth at 28.1%.

Las Vegas, Nevada, another popular investor spot, has seen a 14.6% increase from last year.

As the numbers show, investors are increasingly turning to SFRs as a preferred investment opportunity. Not only are they appreciating in value, they're also providing excellent returns through rental income.