Rent or fix-and-flip? Real estate investors are holding onto properties to rent them more often than they are flipping them, according to the Spring 2023 Investor Sentiment Survey from RCN Capital.
The survey of 300 investors found 53% intended to rent, while 30% planned to fix-and-flip the homes they purchased.
“The National Association of Realtors noted that existing home sales in May were down over 20% from a year ago, and ATTOM recently reported that the number of properties flipped in the second quarter of 2023 was the lowest number in almost two years, so it’s no surprise that investors are more focused on rental properties today,” said RCN Capital CEO Jeffrey Tesch. “Our survey results mirror the trend toward rental investments and reflect what we’re seeing in our current loan activity.”
Regarding investor sentiment, the real estate market is split fairly evenly, with 30% saying conditions are better than they were a year ago; 32% saying they’re about the same, and 37% saying they’re worse. Views on the market six months from now are more diverse, with 44% thinking they’ll be about the same and 26% feeling they’ll get worse. A similar number, 30%, continue to believe conditions will improve.
While the trend is toward renting, fix-and-flip investors are more optimistic about the future. Some 38% of flippers believe conditions will improve in the next six months, with only 19% believing they'll worsen. Rental investors believe the opposite - only 19% believe things will get better, while 31% believe they'll get worse.
In a surprise to some market analysts forecasting a dramatic housing price downturn, a majority of investors remain optimistic about the property market's trajectory. Approximately 75% predict stable or slightly increasing prices in the imminent six-month span. However, this sentiment reveals a clear divergence between Single-Family Rental (SFR) investors and real estate flippers. Roughly 35% of SFR investors anticipate property value growth, a percentage eclipsed by the 45% of flippers with similar expectations. Conversely, 32% of SFR investors predict a price drop, double the 15% of flippers who share that view. Notably, 39% of flippers and 33% of SFR investors foresee prices maintaining their current level.
Yet, in an atmosphere of relative market positivity, looming economic uncertainty is evident. Close to half of the respondents, a significant 44%, anticipate a potential US recession in the next two years (2023 or 2024). A starkly contrasting minority, merely 15%, believe the country will circumvent an economic slump, leaving 41% of participants uncertain about the future economic landscape.
In the face of escalating financing costs, investors have declared this the most formidable hurdle currently hindering their operations. A scarcity of supply clinches the second spot in the challenge hierarchy, closely trailed by consumer competition, larger investor rivalry, and loan procurement difficulties. These concerns remain steadfast as the most probable obstacles investors will grapple with half a year down the line. A compelling insight divulges that larger-scale investors, those aiming to purchase upwards of 11 properties within the ensuing 12 months, frequently identified securing a loan as an impending challenge, outstripping smaller investors' concerns. This data hints towards an impending credit crunch by regional and local banks, traditional sources of commercial loans for such investors.
Rick Sharga, CEO of CJ Patrick Company, which conducted the survey for RCN Capital, said, nevertheless, it spotlights the resilience of investors amidst soaring financing costs and a dip in home sales. He remarked, "Almost two-thirds remain steadfast, perceiving today's climate as largely unchanged or even superior to a year ago." This outlook may bring a glimmer of hope to a housing market potentially reliant on investor purchases to spur its revival.
