Are You in a Home Bidding War Against Someone in Another Country?
A pandemic inspired urban exodus, a boom of millennials buying bigger homes, and a pre-existing housing shortage have made the single-family suburban housing market extremely competitive. Adding fuel to the fire is a wave of foreign investors scooping up suburban homes near large cities like Atlanta, Las Vegas, and Phoenix – oftentimes in bulk.
Foreign investors account for nearly one-third of institutional investment purchases of single-family rental homes, Alex Foshay, head of international capital markets at Newmark – a real estate services firm – told The Wall Street Journal. Foshay notes that the numbers have risen during the COVID-19 pandemic.
The phenomenon of foreign investors in single-family homes can be viewed a few ways. In one scenario, these foreign investors are buying homes that require a lot of work, fixing them up and selling them to individuals who may have otherwise not purchased in that area because they didn’t have the skill or the finances to complete the necessary repairs. That’s good for individual homeowners.
In another scenario, investors are purchasing entire developments, like in Conroe, Texas where an online property-investing platform, Fundrise LLC, bought the whole community of Amber Pines at Fosters Ridge for $32 million. These single-family homes, near good schools and well-paying jobs, are then offered for rent. While this provides lower income families access to neighborhoods with amenities they may not otherwise have been able to afford, it also slows the rise of homeownership in those areas.
Lastly, these purchases have the potential to create an imbalance in the housing market that would price individuals and families out of these desirable neighborhoods. Investors have easier access to capital, and they often have rapid and more in-depth access to information about a property’s value. If they are simply flipping the house for profit, individual homeowners lose access to more neighborhoods and homes. This would add to the affordable housing issue in some areas.
Programs like the Federal Housing Finance Agency’s (FHFA) Neighborhood Stabilization Initiative (NSI) work with government backed lenders like Fannie Mae and Freddie Mac to help reduce the inventory of real estate owned (REO) properties.
Fannie Mae’s First Look™ program is part of this initiative. This program allows homebuyers who will use the home as their primary residence to have an exclusive “first look” at REO properties so they can make an offer without competition from investors.
Anyone buying in a seller’s market should understand how to best compete with all cash offers. Your strategy remains the same whether you’re competing with an all-cash offer from an individual or an investor (foreign or domestic).
A non-contingent offer will help boost the appeal of your bid. However, contract contingencies are there to protect both parties, but primarily the buyer, so waiving those protections can have costly consequences. An experienced REALTOR® can help you create a strong offer that protects you financially but holds up against competing all cash offers.
Your REALTOR® will have a deeper understanding of your local housing market. If you’re in an area with a lot of activity from foreign investors, you and your REALTOR® can develop a strong plan to level the playing field between you and these investors.