Builders Selling Discounted Homes to Investors

As traditional buyers balk in the face of rising mortgage rates, some builders are selling inventory in bulk to investors at an estimated 10%-15% discount.

NEW YORK – Due to an excess of new homes, investors are taking advantage of an offer from U.S. home builders: Buy properties in bulk at a discount rate.

Mortgage interest rates hovering around 7% have caused traditional new-home buyers to withdraw, creating opportunities for investors. U.S. Census Bureau numbers indicate that there were 14% more homes under construction in August than there were a year ago when the sales market was healthier, and in the current climate, the most eligible remaining clientele for builders are landlords who can scoop up large lots.

As a result, these investors receive better prices for homes than owner-occupiers, with investors and brokers estimating a price drop of 10% to 15% compared to retail buyers.

However, financing these home purchases has become more costly for investors too amid rising interest rates. John Burns Real Estate Consulting’s Rick Palacios said new homes accounted for just 2% of total investor home purchases in July, down from about 6% in the second quarter of 2020.

Dean Myerow at Fort Lauderdale-based rental owner and developer Southern Waters Capital said he is in contract to purchase 20 new homes a month from a builder in Florida, at a 15% to 20% discount.

Beyond price, investors note another advantage to buying new homes in bulk: It’s easier to manage multiple properties when they’re adjacent to each other rather than scattered.

Source: Wall Street Journal (10/03/22) Parker, Will

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