In the wake of the housing crisis, institutional investors became some of the biggest buyers of foreclosed homes, buying the properties on the cheap and turning them into single-family rentals.
Now, with foreclosure inventory shrinking, investors are turning to a new outlet to buy homes to turn into rentals – direct buyers.
Direct buyers, or iBuyers as they're sometimes called, are companies that buy homes directly from homeowners with all-cash offers.
A recent survey by ATTOM Data Solutions analyzed the sales of two leading direct buyers – Opendoor and Offerpad – to uncover 743 transactions with institutional investors, representing nearly 10% of the companies’ combined sales.
This figure has grown recent in recent years, even though the overall number of investor purchases has fallen, down from 2.9% in 2017 to 2.3% in 2018, and a far cry from its peak of 7.4% in 2012.
According to the survey, 3.9% of the companies’ sales in 2016 were from institutional investors, rising to 6.6% in 2017 and 9.6% in 2018.
ATTOM Senior Vice President Daren Blomquist said institutional investors are turning to direct buyers as other sources of inventory – like foreclosures – continue to dry up.
“Tight inventory is a common challenge facing both individual and institutional single-family rental investors across the country,” said Blomquist. “Meanwhile the appetite for more SFR inventory continues to grow as a new wave of institutional capital builds. Industry innovators are rising to meet this challenge through a variety of inventory-inducing channels, including off-market, build-to-rent, and iBuyer initiatives.”
ATTOM said the Cerberus SFR Holdings, CSH Proprety One and TAH Holding were the top three entities closing the most transactions.
Kevin Ortner, CEO of Renters Warehouse, which manages more than 22,000 SFR properties in 42 states, said institutional investors both big and small are looking for creative ways to find new product.
“There are several firms positioning themselves to be able to help bring supply to meet the demands of investors, and I expect that will continue to grow,” Ortner said. “I’m also seeing investment in technology and data across the space allowing greater scale, efficiencies and insights.”
Gary Beasley – CEO and co-founder of Roofstock, an online marketplace for single-family rental investments – said the rental market provides investors with tremendous opportunity.
“A properly priced rental home today, there is almost limitless demand for it,” said Beasley. “We have to get creative about how to attract this inventory, and if it isn’t available to create it.”