The glory days of real estate investors buying homes and flipping them for quick profits seem to have come to a standstill. It appears that investors now lose out on nearly one in seven homes they sell.
In some US cities, skyrocketing home prices and high mortgage rates have reduced demand for homebuyers, forcing investors to sell homes at a loss. A recent report by Redfin reveals In March, investors lost money on approximately 13.5% of the homes they sold, while only 4.8% of all homes in the US were sold at a loss.
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Real estate numbers for February
This comes after a rough month in February, when real estate investors posted losses of 14.5% of homes sold – the highest rate since 2016 and a far cry from the record monthly low of 2.8% in May 2022. The first quarter of 2023 saw real results. Real estate investors bought 48.6% fewer homes than a year earlier, as higher interest rates and lower rents and home values increased earning potential.
The decline marks the largest annual decline ever, surpassing the 40.7% decline in total home purchases on Redfin’s major metro lines. While these stats dispel the notion that buying and selling real estate guarantees big profits, it is worth noting that investors still have a relatively strong position overall.
Now the question arises: Where are the homes most likely to be sold at a loss? according to RedfinReal estate investors are likely to incur losses in markets that have seen the biggest home price hikes during the pandemic. To determine this, the report examined data from the 40 most populous US metropolitan areas.
Profitability has been hampered by high mortgage rates, which has increased the burden of the monthly payment on the typical homebuyer. As a result, a slowdown in home buying demand drove down selling prices, causing a larger share of investor-owned homes to sell at a loss.
hardest hit markets
At the time of the report, the hardest hit market was Phoenix, with just over 30% of homes sold by investors incurring losses. Las Vegas came in second with 28%; Jacksonville, Florida, 20.9%; Sacramento, California, 20.2%; and Charlotte, North Carolina, 17.4%.
Van Welborn, Redfin’s dealer in Phoenix, shared an example. “I recently offered a buyer a three-bedroom, single-family home in Glendale that had been listed by an investor. Eventually, my client found another home that he liked better, and the investor ended up losing about $20,000. The investor bought the house “for $450.” $1,000 and sold it for $480,000 but $50,000 was invested in it. The home also sold for less than the list price of $550,000 after being on the market for about four months. “
On the flip side, investors are less likely to face losses in affordable areas as housing prices have not seen such drastic increases during the pandemic. Certain South Florida markets have shown greater resilience.
For example, in March, only 1.7% of homes sold by investors in Virginia Beach, Va., resulted in losses — a significant difference compared to Phoenix. After Virginia Beach came West Palm Beach, Florida, at 2.4%. Miami 2.5%; Fort Lauderdale, Florida, 2.5%; and Warren, Michigan, 2.6%.
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Why don’t investors wait to sell until the housing market picks up? According to Redfin Chief Economist Sheharyar Bukhari, many Long-term investors who rent out their properties do just that. But for many flippers, especially those who have made purchases recently, waiting until the end just isn’t financially feasible.
In March, nearly 1 in 5 homes sold by Home Flippers resulted in a loss, according to Redfin.
“Keeping non-income homes can be expensive because the owner is under the weight of real estate taxes, along with operating costs and in some cases monthly mortgage payments,” Bukhari said. “Many short-term investors also choose to go short because they know prices may have more room to run and want to cut their losses.”
While the number of investor-owned homes selling at a loss is currently high, it’s important to remember that many real estate investors – both large corporations and individual investors – continue to make gains from buying and selling homes, even in quiet housing markets.
According to Redfin data, the typical investor sold a home in March for 45.9% ($145,714) more than the purchase price. But those gains have dwindled from 55.3% ($173,458) in the previous year and a peak of 67.9% ($199,274) in June 2022.
Amid fears of a further slowdown in the economy and house prices, which could present more challenges for residential real estate investors, alternative avenues to participate in the real estate market are worth exploring. If buying and selling homes is not currently on the cards, consider alternative avenues.
Some real estate experts believe that vacation rentals provide the fastest way to make money in today’s real estate market. In 2023, as Americans opt for longer, more luxurious vacations, investing in vacation rentals makes sense when all factors are considered. And the best part? Anyone can start with just $100.
Journey, the first hospitality platform powered by artificial intelligence (AI), revolutionizing the short-term rental industry. It reported an impressive 100% increase in daily active users since the launch of JurnyOS 2.0 last month. Powered by GPT-4 and featuring dynamic AI tools, this cutting-edge operating system handles all the heavy lifting for property managers. From streamlining operations to enhancing guest experiences, Jurny’s end-to-end solution improves and automates every aspect of managing short-term rental properties around the world. Anyone can invest in Journy for a limited time.
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