Homes sold at a loss, numbers not seen since 2016, but this booming alternative is open to anyone

By | September 13, 2023

The glory days of real estate investors buying and selling homes for quick profits appear to have hit a snag. Investors appear to be losing about one in seven homes they sell.

In some U.S. cities, skyrocketing home prices and high mortgage rates have decreased homebuyer demand, forcing investors to sell homes at a loss. A recent report from Redfin reveals that investors lost money on approximately 13.5% of homes sold in March, while only 4.8% of total U.S. homes were sold at a loss.

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February real estate numbers

This comes after a terrible month of February, in which real estate investors suffered losses on 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. Investors Realtors purchased 48.6% fewer homes than the previous year as high interest rates, falling rents and home values ​​dented potential profits.

The decline marks the largest annual decline on record, surpassing Redfin’s 40.7% decline in overall home purchases in major metros. While these statistics dispel the notion that buying and selling real estate guarantees substantial profits, it’s worth noting that investors still enjoy a relatively strong position overall.

Now the question arises: where are houses most likely to be sold at a loss? According to Redfin, real estate investors are most likely to suffer losses in markets that have seen the largest home price increases during the pandemic. To determine this, the report examined data from 40 of the most populous metropolitan areas in the United States.

Profitability has been hampered by high mortgage rates, which have increased the burden of monthly payments for typical homebuyers. As a result, slowing demand for home purchases has led to lower sales prices, resulting in an increase in the share of investor-owned homes sold at a loss.

Most affected markets

At the time of the report, the hardest-hit market was Phoenix, where just over 30% of homes sold by investors had suffered losses. Las Vegas follows closely, 28%; Jacksonville, Florida, 20.9%; Sacramento, California, 20.2%; and Charlotte, North Carolina, 17.4%.

Van Welborn, a Redfin agent in Phoenix, shared an example. “I recently showed one of my buyers a three-bedroom single-family home in Glendale that was listed for sale by an investor. My client ended up finding another home he liked better, and the investor ended up losing about $20,000. The investor purchased the home for $450,000 and sold it for $480,000, but put $50,000 into it. The home also sold below the list price of $550,000 after sitting on the market for nearly four months.

On the other hand, investors are less likely to face losses in affordable areas where home prices have not seen such dramatic increases during the pandemic. Some South Florida markets have shown more resilience.

For example, in March, only 1.7% of homes sold by investors in Virginia Beach, Virginia, resulted in losses, a significant difference compared to Phoenix. Following Virginia Beach were West Palm Beach, Florida, 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 real estate market recovers? According to Redfin senior economist Sheharyar Bokhari, many Long-term investors who rent out their properties are doing just that. But for many flippers, especially those who have made recent purchases, waiting it out isn’t financially feasible.

According to Redfin, about 1 in 5 homes sold by Home Flippers reported losses in March.

“Maintaining non-income producing homes can be expensive because the owner is burdened with property taxes, along with operating costs and monthly mortgage payments in some cases,” Bokhari said. “Many short-term investors also choose to sell because they know prices may have more room to fall and they want to cut their losses.”

While the number of investor-owned homes being sold at a loss is currently high, it is important to remember that many real estate investors – both large corporations and individual investors – continue to make money from buying and selling homes, even in times of cooling markets. real estate markets.

According to Redfin data, the typical investor sold a home in March for 45.9% ($145,714) more than the purchase price. But these earnings are down from 55.3% ($173,458) a year earlier and a peak of 67.9% ($199,274) in June 2022.

Amid concerns of a further slowdown in the economy and home prices, which could present additional challenges for residential real estate investors, it is worth exploring alternative avenues for participating in the real estate market. If buying and selling homes is currently out of the question, consider alternative approaches.

Holiday houses

Some real estate experts believe that vacation rentals offer 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 you consider all factors. And the best part? Anyone can get started with just $100.

Jurny, the first artificial intelligence (AI)-enabled hospitality platform, is revolutionizing the short-term rental industry. It reported an incredible 100% increase in daily active users since the launch of JurnyOS 2.0 last month. This cutting-edge operating system, based on GPT-4 and equipped with dynamic artificial intelligence tools, takes care of all the heavy lifting for property managers. From simplifying operations to improving guest experiences, Jurny’s all-in-one solution streamlines and automates every aspect of managing short-term rental properties around the world. Anyone can invest in Jurny for a limited period.

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