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Should iBuyers Be Part of Your Investment Strategy?

How iBuyers Can Affect Real Estate Investors

A faster, simpler method of buying and selling real estate is sweeping the market. Real estate investment trends show that more and more people are turning to iBuyers to expedite the home selling process.

An iBuyer, or "instant buyer," is a real estate company that uses algorithms and technology to buy and resell homes quickly. iBuyers purchase the home as-is without requesting any repairs, upgrades, warranties, closing costs or concessions, or real estate agent commissions—sometimes at a discounted price.

Selling to an iBuyer allows the homeowner to sell their home without a broker or real estate agent, saving them time while avoiding the challenges and risks that can be incurred with the traditional real estate transactions. iBuyers have quickly moved from being on the horizon of real estate investing to now racing across the landscape.

How iBuying Works

iBuying companies use different models to provide different solutions based on the seller's needs. The company uses algorithms to determine the ideal buy price for a property based on comparable properties in that market, rather than manually determining a value.

By using technology to streamline the buying process, iBuyers can minimize costs and speed up closing timelines making it an appealing option for some people who are selling a home.

In 2019, iBuyers made big gains. As the COVID-19 pandemic began to unfold in 2020, they were forced to hit the brakes because of government-issued stay-at-home orders. Sales and purchase activity began picking up in 2021, indicating the major iBuyer companies are making a recovery.

iBuyers bought more houses at higher prices in Q2 2021 than any other quarter. Even in a seller’s market, consumers and real estate market conditions fueled the industry’s growth.

iBuyers Present Opportunities for Real Estate Investors

Real estate investors are always looking for an edge. Whether it’s finding the best property, negotiating the best financing, or assembling the best real estate team, every little advantage matters.

iBuying is another tool for investors to add to their toolbox. Real estate investors – especially SFR real estate investors and fix and flip investors – can benefit from the iBuying trend in four major ways:

Greater ability to take advantage of Opportunity Zones
Quickly finding available investment properties across the country
Opening doors to invest in different geographic areas
Buying properties “in bulk” with portfolio purchases

Opportunity Zones

Opportunity Zones were created as part of the Tax Cuts and Jobs Act of 2017 to spur economic development in specifically designated areas. Investors who study Opportunity Zones and strategically take advantage of them can gain an edge when it comes to purchasing rental property.

The kinds of investments that are eligible for Opportunity Zone benefits are projects that many real estate investors are already involved in, so it doesn’t require a new investment strategy.

When it comes to setting up Opportunity Zones, the first two steps are crucial: identify the Opportunity Zones where you want to invest and find qualifying properties.

For investors looking to set up in Opportunity Zones, using an iBuyer allows them to easily search for qualifying property in the zone where they’re looking to invest. Investors can combine those steps, minimize the upfront legwork, and set themselves up for success in Opportunity Zones by using an iBuyer company.

Searching for Property Using iBuyers

In a perfect world, real estate investors would have enough time during the day to drive around and search for potential investment properties or fly from city to city checking out the latest listings. Many investors work with brokers and realtors to find potential investment properties, but even that only yields so much success. Others execute time-consuming strategies like cold calls, direct mail, and others.

The time management behind looking for investment properties has created a perfect situation for iBuyer companies to step up to the plate.

When an investor works with an iBuyer, they get the opportunity to browse the available listings on that iBuyer’s website, schedule times to “visit” multiple listings, and then notify the iBuying company which property listings they’re interested in. Investors don’t have to schedule an appointment, and they can view the property immediately after the listing is available. They can view homes on a whim at different times of the day – no matter where they are.

Purchasing investment properties through an iBuyer (like iBuyer.com, for example) opens the door for real estate investors to find and purchase properties across the country from any location. When the numbers pencil out to a profit, they create a major timesaver.

Where Are iBuyers Succeeding?

The iBuyer trend has caught on in some of the biggest cities in the country, and it has opened the door for investors to expand their portfolios.

Until recently, investors who wanted to buy a single-family home to rent out had limited options, as they were typically only able to consider properties within a reasonable driving distance that they could physically visit.

iBuying has been a game-changer in that area.

In an interview with PYMNTS, Roofstock CEO Gary Beasley said his company’s biggest achievement has been breaking down the geographic barriers for real estate investors, making it easy to buy a home and rent it out anywhere in the U.S.

Beasley added that close to 80% of rental homes in the U.S. are owned by people who have two or fewer properties. There is a potentially big market for the kinds of tools that new iBuying technologies like Roofstock offer because of the ways they simplify how investors manage those investments.

“It’s mostly people living in more expensive places who are looking at a home elsewhere in the country, and they’re buying their first investment properties through us,” Beasley said. “And they can do it sight unseen.”

In his appearance on The Real Estate of Things podcast, Beasley put it this way: “The American dream is owning a home someday or multiple homes—but maybe it’s where you don’t live.”

Buying Real Estate Investment Property “in Bulk”

The real estate market is hot, and it’s created some difficult scenarios for homebuyers and investors. Being able to purchase individual properties and rental portfolios through iBuyer companies has given investors a huge advantage in the game.

A recent report from Freddie Mac showed that the SFR market accounts for about 23 million rentals in the U.S. That’s a lot of opportunity for investors to jump into markets they aren’t currently in. Not only does iBuying open the door for investors to purchase multiple properties in different cities, but it also opens the door to “buy in bulk” by way of purchasing portfolios.

In recent years, changes to the real estate market and how SFRs are bought, sold, and managed have revolutionized how investments are done — and the scale at which properties are being bought and sold.

The current state of large-scale SFR investing has its roots in the post-recession years of 2008-2009. During these years, private equity firms spotted an opportunity with a large number of foreclosed houses on the market and began buying them up in bulk. Today, approximately $33 billion of SFR assets are owned by institutions, something that’s helped to firmly cement SFR properties as a long-term asset class.

This growth in investor demand has also helped to fuel the development of online platforms for buying and selling properties, making it easier than ever for investors to connect and transact with each other. Companies like Roofstock and SVN | SFRhub are paving the way in iBuying and creating a multitude of different opportunities for investors.

What Do iBuyers Mean for Investors?

iBuyers took a step back during the pandemic, but data shows they are diving back in. Despite low housing inventory nationwide, experts believe that the recent resurgence of iBuyers shouldn’t materially affect available housing inventory.

And that’s great news for investors because not only will they still have access to available inventory, but if they purchase properties through an iBuyer, they actually have greater access to more properties in more locations.

The bottom line with iBuyers is the same as the fundamental truths across the market—real estate investors with strong real estate investment strategies can still profit. It’s now more important than ever to have a lender capable of helping you:

Secure a loan with the best price and maximum leverage for your next rental investment
Close properties quickly and certainly
Run your construction and rehab projects smoothly

If you’re interested in obtaining a loan to purchase an investment property, contact Lima One to get started. We’re the nation’s premier lender for real estate investors, and we offer one of the most robust product suites in the industry.

We are experts when it comes to financing fix and flip rehab loans for investors, rental properties and portfolios, multifamily real estate investment opportunities, and new home construction for builders on urban in-fill, spec homes, model homes, and teardown/rebuild projects. Our team of experienced professionals will help guide you through the process of financing your next investment.

Get started today and scale your real estate investment portfolio with Lima One, the nation’s premier lender for real estate investors.

Largest Market Shares of iBuyer Purchases

*Based on data from the National Association of REALTORS®

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