July 29, 2024 | 2 Minute Read
During the hypercompetitive pandemic years, cash was king as investors flooded the housing market with hefty cash offers. Now, however, the trend is shifting.
According to a recent Realtor.com® report, the percentage of investors purchasing homes with cash dropped to 64% in the first quarter of 2024. This is a notable decline from the fourth quarter of 2021, when 69.7% of investors bought homes without mortgage contingencies to win intense bidding wars. This current percentage is the lowest since 2008.
According to a recent Realtor.com® report, the percentage of investors purchasing homes with cash dropped to 64% in the first quarter of 2024. This is a notable decline from the fourth quarter of 2021, when 69.7% of investors bought homes without mortgage contingencies to win intense bidding wars. This current percentage is the lowest since 2008. This shift benefits regular homebuyers, who now face less competition from cash-rich investors.
Why Cash is No Longer King: Investors are Changing
Despite rising interest rates, more investors are opting for financing. This change is largely due to the majority now being independent investors rather than large corporations.
From January to March 2024, small investors (defined as those having purchased 10 or fewer homes since 2001) accounted for 62.6% of investor purchases. This is the highest share of small investors since 2001, according to the Realtor.com report.
If an investment property in your market costs $200,000, you can buy one in all cash or put 20% down and buy five properties with the same amount of money. It makes sense to leverage your capital and acquire more cash-flowing properties through financing.
Shifting Attitudes Toward All-Cash Offers
There is also a shift away from the debt-free lifestyle promoted by financial gurus like Dave Ramsey. There’s a shift to using debt responsibly. Not all debt is bad debt, and using it wisely can accelerate your retirement plans.
Cities with the Most All-Cash Investor Purchases
In the first quarter of 2024, the highest percentages of all-cash investor purchases among the 100 largest metros were in Portland-South Portland, ME (81.3%), Albuquerque, NM (81.2%), Toledo, OH (80.5%), McAllen-Edinburg-Mission, TX (79.5%), and Ogden-Clearfield, UT (79.0%).
“All-cash investor purchases are more common in relatively low-priced areas and areas popular for second homes/vacation homes,” says Realtor.com senior economist Hannah Jones. Even in more expensive markets like New York City, there is a “middle-of-the-pack all-cash investor share.” In the first quarter of 2024, 64.5% of investors in the New York City metro area paid in all cash, slightly above the national average. This represents a 1.6 percentage point decrease from a year earlier, compared to a national decline of 2.1 percentage points.
The Perks of Financing a Home Purchase
Financing a home purchase offers several advantages, such as tax deductions on mortgage interest. Financing incentives can also benefit investors. Last year, a [Fannie Mae] program came out that allows 5% down on two- to four-unit properties if you occupy it for one year. They buy multifamily homes, live in one unit, and rent out the others. After a year, they buy another property and repeat the process. It’s a common strategy to ‘stack’ properties this way.
Finally, financing can buy investors more time than a cash offer would.