Wall Street Is Scooping Up Homes, and That's Bad News for Buyers

by Maurie Backman | Published on Sept. 6, 2021

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Today's buyers have a lot of competition -- not just from other buyers, but from investors too.

It's been a tough year to purchase a home for new and seasoned buyers alike. Low inventory has created a world of competition in the housing market, and many of the homes that have hit the market have wound up in bidding wars.

The result? Home prices have soared this year, causing buyers to get priced out. And while mortgage rates have been sitting at competitive levels, especially in recent weeks, they're not low enough to compensate for inflated prices.

But it's not just that individual buyers keep having to duke it out over the limited supply of available homes. There's a lot of competition from another source -- Wall Street.

Investors are swooping in

Investment firms are buying homes at a rapid pace because they present a money-making opportunity. Those homes can be rented out, and that rental income can then be used to scoop up more properties or invest elsewhere.

But while buying homes could make investors wealthy, it puts average buyers at a key disadvantage. Investment firms with access to loads of capital have more flexibility in buying homes, namely since they can afford to pay more for properties and they don't have to rely on mortgages to finance them.

Average buyers, by contrast, generally can't swing a home without paying it off over time via a mortgage. But since sellers tend to favor offers that aren't contingent on mortgage financing and approval, investment firms have a clear edge. And that leaves regular buyers out in the cold.

Can you compete against Wall Street?

Even before the pandemic, investment firms routinely bought properties as a way to diversify their portfolios beyond classic assets like stocks and bonds. But now, they're buying up homes at a faster pace to take advantage of rising rent prices. Renting out single-family homes is expected to deliver annual returns of 6.8% for private investors over the next three years, compared to 6.1% for apartments and 6.3% for industrial properties, according to real estate analytics firm Green Street.

So how can you, as a regular buyer, compete with those investment firms? Your best bet is to keep a close eye on your local real estate market and pounce when new homes get listed. If a home becomes available on a Tuesday morning, ask your real estate agent to arrange a showing for Tuesday afternoon. Beating investors to the punch could help you snag a home when the competition is fierce.

At the same time, do your part to present yourself as the most qualified buyer possible. Get a pre-approval letter from a mortgage lender so sellers recognize that you're a serious buyer whose finances have already been examined.

Finally, be patient. Right now, there's a limited supply of homes available to buy. But as the year goes on, we could see inventory slowly but surely creep upward. There was already a touch more inventory in June compared to May, and if that trend continues, it might become easier to buy a home -- even with investors being part of the mix.

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