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Fix-and-flip investors are filling in the gaps in some housing markets: report

Amid housing shortage crisis, investors are stepping up

Roughly 80% of real estate investors surveyed are selling single-family homes at or above asking price after fully renovating the properties to make them habitable, according to a report from real estate marketplace New Western.

“Investor sentiment is positive right now as they haven’t let the macroeconomic environment slow them down,” said Kurt Carlton, co-founder and president of New Western, one of largest real estate investment marketplaces in the U.S. “The U.S. is lacking about 320,000 listings valued at the affordable range for middle-income buyers. These investors see the housing shortage as an opportunity to deliver homes for buyers where the payoff is larger than the profits.”

From Q1 2023 to Q2 2023, the top five cities for New Western investors were Boston, MA (88% growth), Washington, D.C. (50%), Charlotte, NC (49%), Jacksonville, FL (48%) and Houston, TX (46%). Other notable markets that grew in the same period included popular Sunbelt investor havens Atlanta and Dallas.

New Western investor activity grew across these markets even though a recent Redfin report showed a 40% decrease in investor purchases. This illustrates how investors are determined to find opportunities despite negative market sentiment, New Western concluded. Approximately 55% of survey respondents said location/neighborhood is most important to their buyers. On average, homes purchased through New Western and later renovated sell for 31% less than new traditional homes for sale in the same market.

Independent rehabbers, according to the report, are stepping in to address “scalability” challenges and fill the gaps in individual markets, driven by demand. 

“Clearly, the survey shows that the housing dynamics have changed in the mind of some investors,” said Logan Mohtashami, Lead Analyst at HousingWire. “New listing data is trending at all-time lows; active inventory growth has been so slow in 2023 that we will see some negative year-over-year prints soon in the weekly inventory data. Also, housing demand stabilized from its waterfall collapse in 2022. In this environment, the opportunity to fill in the need due to the housing shortage is being tackled by investors. Also, this is all happening with higher rates; if rates fall in this environment, demand has nowhere to go but up from such low levels.”

For the remainder of 2023, investors are confident in the residential real estate market; about 70% of respondents plan to invest in one to three properties and 75% saw business growth from the second half of 2022 to date.

A little over 70% of respondents invest in the Southwest and Southeast regions of the U.S. Additionally, roughly 45% of respondents fund their investments through hard money or investment financing and about 30% through cash. 

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