Some Hedge Funds Using ‘Buy & Hold’ Strategy in Housing Markets

By Andy Medici | The Business Journals

Homebuyers are increasingly going up against hedge funds and other big institutional buyers in a hot housing market— and they will need to bring their best offers to the table.

Cheri Benjamin, Realtor® and CEO of Village Premier Collection, said buyers might want to try and put down more than 20% and get their bank to wave an appraisal, as well as see what other contingencies they can do without. That’s because institutional buyers are now paying in cash and often at the listing price or above.

The metro areas with the biggest share of institutional homebuyers includes:

  • Memphis, Tennessee: 15.8%
  • Atlanta-Sandy Springs-Roswell, Georgia: 12.5%
  • Charlotte-Concord-Gastonia, North Carolina: 11.6%
  • Phoenix-Mesa-Scottsdale, Arizona: 11.5%
  • Jacksonville, Florida: 10.9%

“What’s happening is that they are coming in and they are paying cash and they are paying over and above what the asking price is for the property,” Benjamin said, stressing that before Covid-19, they often would only pay about 70% of the after-repair value on a house because they intended to flip it. “They are entering more into the buy-and-hold market versus the buy-and-flip market. That’s why we are seeing a bit of a shift from that.”

Homebuyers are going up against institutional buyers more and more, according to property database Attom Data Solutions LLC. Institutional investors accounted for 4.6% of all single-family home and condo purchases in the second quarter of 2021, the highest share since the fourth quarter of 2015. That is up from 3.2% during the first quarter of 2021 and more than double from the 2% during the second quarter of 2020.

In many places, that share is even higher, with 10.4% of all sales in Arizona made up of institutional buyers.

Sellers have to beware of taking an offer from institutional buyers, who may offer asking price or above but will use the inspection contingency to drive the price back down.

“What investors typically do is they beat you up when it comes to the inspection,” Benjamin said. “They want price reductions for those repairs.”

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