The trend looks nigh invincible as a strong economy and rising interest rates continue to cement it into place.
But, what if there was a trend brewing that could pop the bubble?
There might be.
Earlier in the year, average, well-to-do people or non-institutional investors, started showing a lot of interest in commercial investments, much of which is centered around Class-B and Class-C multifamily properties. Non-institutional interest in commercial real estate investment has been growing quickly and planting the seeds of what could be the first shake-up the residential real estate market has seen in a while.
Typically, these non-institutional investors are successful business people enjoying the boons of a strong economy, and they usually cut their teeth on single-family investment properties they flip to sell or rent.
But now, that market is way too hot. The already strained housing supply cannot support the demand from the growing number of financially stable people who want to buy homes as well as the demand for the small-time residential investors.
The heat in the single-family market has caused some of these investors to develop an appetite for small commercial investments and birthed a number of companies to facilitate the demand.
Jeff Holzmann, managing director at one such company, iintoo, believes this move might finally take the air out of the over-inflated single-family market that's partially buoyed by house flippers and the like.
Iintoo is a social investment network that allows its users to invest in its professionally managed commercial properties around the nation. It's a bit like crowdfunding for real estate equity. Investors in the network are responsible for providing a minimum $25,000 investment each, and they can choose which property (or properties) they want to take an equity stake in.
In an interview, Holzmann told HousingWire that there appears to be a shift taking place in what real estate investors are interested in.
“What’s happening with commercial grade real estate, like multifamily complexes, is that as these people learn that flipping houses in not really a good idea because you can lose a lot of money…what we’re seeing more and more is a shift toward average people who can afford it that are not driving the prices of real estate up by buying homes,” Holzmann told HousingWire.
“What we’re seeing are platforms like ours that allow [investors] to group together into a sizable, multi-million-dollar position and invest that in a professionally managed property,” he added.
This less risky method of real estate investing seems to be gaining traction with non-institutional investors, and if the trend continues to grow, it could bring some much-needed relief to home prices.
Holzmann was unwilling to disclose exact numbers on the demand his company is seeing, but he noted that the market for non-institutional investment, though relatively young, is already putting up billions of dollars per year in volume and that over the course of several months, iintoo was able to raise $160 million in capital.
According to Holzmann, 70% of the real estate market operates on this non-institutional level, so he, and the other companies cropping up to help small-time investors invest, sees tremendous upside to this emerging market segment.