Entry-level homes driving investor market
Investors are buying Houston homes in record-high numbers, according to a CoreLogic analysis , scooping up nearly 10 percent of all homes sold in 2018, up from less than 8 percent year before.
Their impact was felt most in entry-level home market, where investors acquired more than 16 percent of lower-priced starter homes, according to the analysis. The rise in investor purchases is part of a nationwide trend, with investors buying roughly 20 percent of starter homes nationwide, up from about 10 percent in 2000.
While investors who have purchased more than 100 properties make up a sizeable proportion of investment purchases, it’s socalled mom-and-pop investors who are gaining the most market share.
These investors buy between one and 10 properties, often in areas near where they live. And in 2018, they purchased more than 60 percent of investor homes, up from 48 percent in 2013.
And as the number of investors has increased, so has the rate at which new listings are selling, suggesting a more competitive market.
David Hicks, co-president of the Dallas-based investing company Homevestors (famous for trademarking the phrase “We buy ugly homes”) said his franchisees were on track to buy between 16,000 and 17,000 homes within the next year. Many of those affiliated with Homevestors fall into the small investor category.
“The reality is last month was our best month ever, in our history. And it looks like we’ll beat last month this month,” Hicks said. “There’s more (investment) money than there’s been in years.”
Split market
Not all investors are directly competing with first-time homebuyers. Homevestors, for example, targets homes that require significant repairs.
“People don’t call an advertiser saying ‘We buy ugly houses’ if they have a nice house,” Hicks said. On average, he said, his company’s franchisees spend more than $20,000 renovating each home. In that submarket, the repair of fixer-uppers ends up increasing the inventory of readyfor-move-in, owner-occupied homes on the market.
Investors targeting entry-level homes, on the other hand, often convert those properties to rentals. Hicks estimated that, in certain markets, up to half of Homevestors’ homes are sold to such investors once Homevestor makes the necessary repairs.
The all-time high percentage of investor purchases is unlikely to subside, said Ralph McLaughlin, CoreLogic’s deputy chief economist. “I’ve been asked if this trend will continue, and I think the answer is yes.”
McLaughlin pointed to Opportunity Zones, the recent tax-incentive program that allows investors and companies to defer and substantially lower capital gains taxes when they sell stocks, businesses, real estate or other assets by reinvesting those profits in certain areas.
“Opportunity Zones are going to direct a lot of money that isn’t in real estate into real estate,” McLaughlin said. “Whenever you see a rush of inexperienced investors into a market, it certainly gets your heart rate going.”