Why Do Investors Beat Out First-Time Buyers?

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April 12, 2016

First-time buyers can’t seem to catch a break. It isn’t bad enough that the amount of affordable, entry-level homes on the market is at bottom-of-the-barrel levels. The stiffest competition for these first-time buyers isn’t even other buyers, but investors looking to purchase these homes and then rent them out.

Part of the reason why first-time buyers can’t seem to outbid these investors is simple; the investors just have more money to spend. As Realtor.com reports, the typical buyer of an investment home in 2015 had a median household income of $95,800, a substantially higher amount that median-income households and primary residence buyers. Additionally, investment buyers are more likely to pay cash for a home or, if they do need to take out a mortgage, they put down more than 20 percent. The average down payment for an investor was 26 percent whereas the average for an owner-occupier was only 11 percent. This,combined with much higher credit scores, means it is very hard for a ordinary buyer of one of these entry-level homes to compete.

The main reason these investors are so keen to scoop up these properties is rental income. With near-zero interest rates and a record number of renters in the U.S. in 2015, it becomes apparent why people are interested in owning a rental property of their own.

Unfortunately, the climate doesn’t look as if it will change anytime soon. Those with higher income and good credit are more likely to purchase an investment or vacation home, leaving an even tighter inventory for entry-level buyers.

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