Fewer Investors Are Buying Real Estate — Will This Give Way for Others To Buy?
Written by
Andrew Lisa
Edited by
Molly Sullivan
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Many people dream of quitting the nine-to-five grind and building a fortune on their own terms as real estate investors. But this year, that dream is colliding with an unforgiving reality.
The most recent market data from Redfin shows that investors purchased 49% fewer properties in the first quarter of 2023 than in 2022. That’s a more dramatic contraction than even the massive 41% overall reduction in home purchases over the same period.
As declining rents, falling home values and soaring interest rates eat into profits, many real estate investors have come to the same conclusion as garden variety homebuyers — the current conditions are just too challenging to make a play.
But does the absence of professional investors present a window of opportunity for everyday buyers? There’s definitely a bright side, but investors also play a key role in a healthy real estate market.
Inventory Loosens Up When Investors Sit on the Sidelines
According to Rocket Mortgage, the market is suffering from an acute inventory shortage. Builders have produced far too little new construction to satisfy demand and potential sellers are unwilling to part with the record-low rates they secured during the pandemic.
In short, there are far too many buyers competing for far too few houses — and the absence of investors helps preserve what little supply remains.
“A less saturated market could mean a greater inventory of available properties, providing more choices for buyers to find their dream homes,” said real estate investor Rod Khleif, founder of the “The Lifetime Cash Flow Through Real Estate Investing” podcast and author of “How to Create Lifetime Cash Flow Through Multifamily Properties.”
Fewer Investors Means Less Competition — And Stiff Competition, at That
The diminished presence of investors favors buyers on both sides of the supply/demand seesaw. Not only is more inventory available in their absence, but buyers aren’t forced to bid against them for what little remains, giving prospective homeowners a sliver of leverage in a brutal seller’s market.
“The reduced presence of professional investors in the real estate market can indeed create favorable conditions for homeowners looking to buy,” said 25-year industry veteran Ritika Asrani, head broker and sole owner of Century21 St Maarten. “With fewer investors competing for properties, there is potential for reduced competition and more negotiating power for homebuyers. Additionally, lower investor activity may lead to stabilized or even slightly lower property prices, offering an attractive opportunity for prospective homeowners to enter the market at a more favorable point.”
Also, professional investors aren’t your average rival homebuyers. They’re skilled, savvy and experienced negotiators — and their preferred payment method is more attractive than your preapproval from the bank.
“Sellers might be more willing to negotiate on terms, closing costs, or even price when there are fewer cash buyers vying for their properties,” said Rick Gruebele, owner of Visions First Realty.
But Investors Generate Sorely Needed Inventory, Too
The investors-to-inventory dynamic is a double-edged sword. Fewer investors can mean less competition and more choices for you — but not if it’s flippers who are waiting out the market.
“If larger institutional investors are not actively buying move-in ready homes, then it would be a benefit for homeowners buying a house by decreasing the competition,” said Jimmy Harris of We Buy Houses In West Georgia. “But if smaller investors who purchase dilapidated properties and rehab them to resell to future homeowners stop buying, this could contribute further to the housing inventory shortage. Most homeowners do not want to buy or cannot buy properties that need extensive repairs. The housing market needs investors to purchase, rehab and resell distressed properties to help increase the inventory of available homes for sale.”
Remember, the Pros Are Sitting Out for a Reason
With so many investors on the sidelines, buyers face less competition and have more inventory to choose from. But investors are professionals who make analytical purchasing decisions — and they’re abstaining because market conditions offer few reasons for optimism.
“I go to a number of real estate meetups each month and the most common complaint by investors is how difficult it is to find property,” said real estate investor Andrzej Lipski of Next Door Properties in Connecticut. “Real estate deals are still being made but there are so few sellers putting their property up for sale and they are demanding such high prices that investors have a hard time justifying the purchase. So a number of my friends are giving up this year.”
For the average buyer, the dynamic will probably end up as a wash.
“With fewer extra players in the market, one might expect a higher chance of securing their desired property without being outbid or facing cash offers from investors,” said Pete Evering, business development manager at Utopia Property in San Diego, one of the largest property management companies in California. “However, this advantage is offset by low housing inventory and extended holding periods by existing property owners. Thus, the benefits of reduced competition are counteracted by a limited number of available homes for sale. You’re essentially facing less competition but for fewer available properties.”
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