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Homebuyers aren’t the only ones entering spring and finding they have few options to choose from.
Investors are heading into spring facing a landscape with few distressed homes for sale, a difficult lending environment and a need to get creative in order to make a profit on real estate.
“Looking for deals is one thing,” said Charles Tassell, chief operating officer of the National Real Estate Investors Association, “being able to find them is another.”
Charles Tassell Chief Operating Officer, National Real Estate Investors Association
In the absence of distressed homes to buy, fix and resell at a profit, and with an ongoing slowdown in rent growth, investors said they’re working with homeowners on ways to work together without actually buying or selling homes.
Rather than a renewal of the frenzy of activity that marked the first two years of the COVID housing market, spring 2023 marked a continued slowdown in activity.
“Now that they pulled back and stopped, that gets rid of what I would say is the less experienced investors that come in,” said Michael Del Prete, an investor in Phoenix. “A lot of that, the people just buying. Loans, low interest rates. Cash from a lot of Californians out here. All of that kind of stopped.”
In the face an ongoing slowdown seemingly affecting every sector within the real estate industry, investors reported a rise of so-called “creative financing.”
Here are the headwinds facing investors this spring and the strategies some are using to overcome them.
Where’s the inventory?
Real estate agents aren’t the only ones preparing for a spring buying season marked by historically lower housing inventory.
Investors are heading into spring facing a dearth of homes to choose from and a lending environment that makes generating profit quite a bit more difficult than it has been for the past several years.
There are 23 percent fewer homes in February than in October, according to the Federal Reserve. In some markets, like Phoenix, where Michael Del Prete is an investor, inventory was 30 percent lower in February than in October.
“Interest rates doubled, everything kind of pulled back,” Del Prete said. “It’s harder to flip because the interest rates and the market’s slower. We also have an inventory supply issue here as well.”
Spring isn’t necessarily the equivalent for investors, who often benefit from distressed sellers forced to list their homes in the slower winter months. But with lending difficult, sales slowing and rent dropping, the landscape isn’t rosy for investors, either.
The same standoff between buyers who are pinched by higher interest rates and sellers who remember what homes sold for a year ago is now affecting investors, said Jay Parsons, Chief Economist for the rental data firm RealPage.