'Regular Investment Buyers' Stake Their Claim

June 24, 2014

At the same time that institutional investors are scaling back on buying, all-cash home purchases are on the rise. So who’s behind the increase?

Joseph Rand, managing partner of Better Homes and Gardens Rand Realty in the New York City metro area, points to three main groups, which he dubs “regular investment buyers.”

One set of all-cash buyers is former home owners coming back to the market after going through foreclosure, Rand says. They may have gone into foreclosure after they stopped paying their mortgage at the height of the housing crisis, but they’ve used the last few years to save enough money to pay cash on their next home purchase.

“We have created hundreds of thousands of people who can’t get a loan [because of a foreclosure],” says Rand. “They cannot get a mortgage, but they can buy all-cash.”

Another growing segment of all-cash home buyers is wealthy people who are buying a home but not selling their current residence. They may not need the equity from their home to make another purchase. “For them, it’s a buying opportunity and not a selling opportunity,” Rand says.

Rand points to another growing group: Wealthy people who’ve performed well in the stock market and who “have millions of dollars to play on the street,” Rand notes. “That’s taking up a much larger part of the trend.”

In the first quarter of 2014, 42.7 percent of home purchases nationwide were all-cash deals, compared to 19.1 percent a year ago, RealtyTrac reports. Institutional investors — those entities who purchase at least 10 properties in a calendar year — accounted for 5.6 percent of all residential sales in the first quarter, the lowest level since 2012.

Source: “Cash Is King: First-Timers Give Way to Bidders Coming Out of Foreclosure,” RISMedia (June 16, 2014)