Mom-and-Pop Investors Are Leading the Charge in Property Purchases: Op-Ed

As housing market headlines continue to be dominated by mentions of high interest rates and property prices, mom-and-pop investors are stepping in. An important component of the U.S. housing market, particularly in the rental sector, they play a pivotal role as they often provide more affordable housing in a highly competitive market. 

The market for investors purchasing new homes has been slow overall, but among those that are actively buying, mom-and-pop investors are surprisingly leading the charge, according to a recent study by John Burns Research & Consulting. Insights from national surveys of homebuilders and real estate agents showed that nearly two-thirds of homebuilders sold properties to investors during a three-month period. About 69 percent of these sales were to mom-and-pop buyers, while only 4 percent were to institutional investors with 10 or more properties.

The study also highlighted regional differences, with the Northeast U.S. seeing a larger percentage of institutional investor purchases at 20 percent, while buyers of vacation homes and second homes were dominant in the Northwest, Southern California and Florida. 

The increase in mom-and-pop investments is largely driven by the continually strong rental market. Rents increased for the sixth straight month in July, up 0.2 percent, bringing the median rent to $1,414 per month. Regionally, 71 of the 100 largest metros in the U.S. saw rent increases while year-over-year declines are mostly focused in Sun Belt cities where multifamily construction has risen significantly this year.

Currently, almost half of all rentals in the U.S. are owned by mom-and-pop investors. About 46 percent of all rentals fall into the category of one to four units, with 70 percent of these owned by individual landlords. These small-scale investors are often the ones offering more affordable housing options, in contrast to the high-end units typically associated with larger-scale, institutionally owned developments.

It is also worth noting that, aside from often providing less expensive rental space, mom-and-pop investors can contribute to a more balanced and stable housing market. Unlike large institutional investors driven by profit margins and shareholder returns, mom-and-pop investors are invested in the long-term success of their properties. This can lead to better-maintained spaces, more stable rental rates, and can therefore be more conducive to supporting community within neighborhoods.

Overall, an increase in mom-and-pop investments is a positive development for the housing market. With approximately 44.1 million U.S. households renting their homes, the demand for more affordable rental housing is only expected to grow. As institutional money declines, it can help reduce artificial demand and can ease upward pressure on prices. This in turn can create more opportunities for smaller investors to operate, helping to supply the much-needed affordable rental housing that is essential for many.

Michael Lucarelli is the CEO and co-founder of RentSpree.