How Investors Pay Less For Homes Than Consumer Buyers

According to a new press release from RealtyTrac, investor purchases accounted for 15.4% of all home purchases nationally in the second quarter of 2021, compared to 11.5% in the second quarter of 2020 — a year-over-year increase of 3.9 percentage points. 

While the year-over-year percentage of investor purchases rose, the investor purchase share remained relatively the same as the previous quarter. Investors accounted for 15.4% of purchases in the second quarter compared to 15.8% in the first quarter of 2021. The percentage of investor purchases among all home sales increased annually in the second quarter of 2021 in all except six states in the U.S. These states include Alaska, Louisiana, Maryland, Nebraska, Vermont and West Virginia.

The notable increase in investors purchases does not reflect a significant change of course for investor purchase activity, according to RealtyTrac executive vice president Rick Sharga. “Historically, investors have always accounted for somewhere between 10% and 15% of residential home purchases, and our data shows that this is still the case today, albeit at the high end of that range. But the data doesn’t support the ‘Wall Street is buying up Main Street’ theme that’s been a popular theory for the past year or so,” Sharga said. 

The Fall 2021 RealtyTrac Investors Purchase Report also shows that investors are typically paying less for homes than consumer buyers, and most are paying with cash. Investors across the country paid an average 29.4% less than consumers in the second quarter of 2021, with a median purchase price of $205,000 for investors compared to a median purchase price of $290,230 for all home purchases. 

The states with the highest investor purchase discounts in the second quarter of 2021 were Arkansas (76.9% discount), Michigan (60% discount), Louisiana (55.5% discount), Nebraska (55% discount), West Virginia (51% discount), and Oklahoma (50.3% discount). 

Investors paid less than median sale price in all but five states, in which they paid at or more than the state median. These states include Vermont (34% premium over state median), California (3.3% premium over state median), Massachusetts (3% premium over state median), Washington (1% premium over state median), and Nevada (the same as the state median). 

“Another misconception is that investors are overpaying for properties, making it difficult for consumers to compete and artificially driving up prices,” Sharga said. “But successful investors tend to look for below-market pricing in order to make a profit on their purchases. And many of them buy properties with cash, which gives them a chance to get properties at a discount.”

Investors continue to pay with cash in a majority of cases and typically see greater price discounts for all-cash purchases. In the second quarter of 2021, 79% of all investor purchases were cash sales compared to 69% the previous year, representing a 10 percentage point increase year-over-year. In all 50 states, cash purchases accounted for more than 50% of all investor purchases in the second quarter of 2021, except for Alaska. Compared to the second quarter of 2020, cash purchases accounted for more than 50% of all investor purchases in only 41 states, with 10 states at less than 50%.

Full state-level data is available in the Fall 2021 RealtyTrac Investor Purchase Report.