Hot Markets for Real Estate Investors

In 2023, investors averaged 13.1% of monthly home purchases, a slight dip from 13.8% in 2022, but investor activity is now rebounding. Historically, investors are among the first to exit during market downturns and the first to reenter when conditions stabilize.

Surge in Small Investor Activity

From January to March 2024, small investors—those who have purchased 10 or fewer homes since 2001—dominated investor activity, comprising 62.6% of all investor purchases, the highest share ever recorded. Their buying volume increased by 6.4% compared to the same period in 2023. In contrast, medium investors (owning 11 to 50 homes) and large investors (50+ homes) reduced their purchases by 3.8% and 13.9%, respectively.

During the COVID-19 pandemic, larger investors leveraged their financial resources to snap up properties. However, as mortgage rates and home prices rose, many large investors scaled back, allowing smaller investors to reclaim a larger share of the market.

Hot Markets for Real Estate Investors

With rising interest rates and inflation dominating the financial landscape, investors are seeking out more affordable housing markets. Unsurprisingly, Midwest and Southern metros—where home prices are lower and rents are rising—have become prime targets for real estate investors.

Missouri, in particular, has emerged as a hotspot. During the first quarter of 2024, three of the top five metros with the highest investor share were located in the Show-Me State. In Springfield, MO, investors bought 1 in 5 homes (20.5%), the largest investor share among the 150 largest metros. Kansas City (20.1%) and St. Louis (18.9%) followed closely behind.

Southern metros like Birmingham, AL (18.7%), and Memphis, TN (18.2%) also attracted significant investor interest due to affordable home prices and rising rental demand.

Rising Investor Activity Since Pre-Pandemic

Several cities have seen a surge in investor activity since before the pandemic. Markets like Savannah, GA, Youngstown, OH-PA, Peoria, IL, Springfield, MA, and Montgomery, AL, have experienced significant investor-driven growth in home purchases. These markets have had substantial price appreciation since 2019 but remain below the national median, making them attractive to investors seeking value and future appreciation potential.

Cash is No Longer King for Investors

At the height of the pandemic, all-cash offers dominated investor deals, peaking in Q4 2021 when 69.7% of investors purchased properties in cash. However, this trend has shifted, with only 64% of investors buying in cash in the first quarter of 2024, the lowest share since 2008. Small and medium-sized investors, who are more likely to use financing, are driving this change.

In March 2024, investors bought around 8,000 more properties than they sold, further tightening already limited for-sale housing inventory. Given the strong rental demand and rising rents, investors are less likely to offload properties, adding to the rental housing stock instead.

Opportunities for Real Estate Investors

For real estate investors, the current market presents a unique opportunity. High interest rates may be pushing traditional buyers out, but they create prime conditions for investors, especially smaller ones, to capitalize on lower-priced homes in emerging markets. By focusing on regions where property values are still below national medians, while rental demand remains high, investors can generate steady cash flow and benefit from future appreciation. With larger players stepping back and financing options expanding, now is an opportune time for small and mid-sized investors to strengthen their portfolios and position themselves for long-term gains in a market where average homebuyers are increasingly sidelined.