BAM Key Details:
- New Western released their latest report, showing investors remain confident in residential real estate investment for 2023
- The report also revealed an increase in younger investors as Gen Z is expected to represent 30% of the U.S. labor market in 2023
New Western, the largest private marketplace in the U.S. for fix-and-flip residential investment properties, released their latest report: “The Flip Side: An Outlook for Residential Real Estate Investing in 2023.”
One of the key findings in this report is the business growth the majority of their real estate investors experienced in 2022—along with their plans to continue investing in 2023.
The analysis reveals that, despite higher mortgage rates and low housing inventory, investors remain confident of continued growth in 2023 and beyond.
What is New Western?
As a product of the 2008 housing crisis, New Western leverages data to spotlight promising investment opportunities. Today, it’s the largest private marketplace in the U.S. for both fix-and-flip and fix-and-rent residential real estate investment properties.
New Western continues to make real estate investing more accessible to investors across all generations and price points, boasting a network of 150,000 investors and $15 plus billion in transactions in over 40 markets.
Its report shares proprietary data and exclusive insights into the performance of the U.S. residential real estate investment market—and how it co-mingles with the commercial real estate market.
The company operates in most major U.S. cities, buying a home every 13 minutes.
What’s in the report?
New Western conducted its investor survey in November 2022, polling 886 investors aged 18 and up from across the United States, specifically those who have purchased residential property through New Western or plan to in the future.
Here are a few of the key findings in their report:
- 73% of investors saw business growth from 2021 to 2022
- 70% plan to invest in 2023
- 63% who plan to invest say mortgage rates are not high enough to deter them
- 59% plan to purchase homes using all cash or private money
The growing youth movement
Don’t listen to folks who dismiss Gen Z as “forever renters.” While plenty continue to rent, more and more are turning to residential real estate investment to grow their net worth and add a substantial revenue stream to their annual income.
According to New Western’s report, 7% of investors who’ve purchased investment properties to fix-and-flip or fix-and-rent are 18-29 years old—as are 15% of those planning to invest for the first time in 2023.
Also, 86% of Gen Z survey respondents expressed readiness to enter the market as soon as mortgage rates show signs of (relative) stabilization.
New Western’s six predictions for 2023
Given what they’ve learned over the years, and taken current market conditions into account, New Western has made the following six predictions for 2023:
- Local investors can expect less competition with more opportunities for those with diligence and the proper skills.
- Long-term investors should acquire rentals at favorable price points to offset unfavorable mortgage rates. Cash buyers have an obvious advantage. And investors who can produce cash flow with a rate in the high single-digit rate will only see an upside as the market improves.
- The exit of iBuyers—like Redfin, Zillow, and now Anywhere—from the investor market opens up more options for individual investors to scoop up hard-to-sell properties, rehabilitate them, and put more livable homes back on the market. Mom-and-pop investors also have the advantage of local expertise.
- Millennials and Gen Z will impact the housing market by leaning into residential real estate investment as an additional revenue stream and a hedge against inflation. Their mobility, combined with their interest in untapped, affordable markets, will lead to the growth of mid-metros.
- As rent becomes more affordable than mortgages, which New Western expects, investors who lean into the fix-and-rent strategy will have a larger pool of potential renters for their investment properties.
- The prime remodel years for older homes will provide more properties ripe for remodeling and major home improvement projects—a boon for fix-and-flip investors.
Even though rising interest rates present a challenge, the reality is we have a deficit of five million families that need homes. So the demand is there, but inventory nationwide is still very low. We know there will not be enough new builds to close the gap, while the exit of iBuyers from the investor market will open up a surplus of options for individual investors to scoop up deals and provide inventory by rehabbing existing homes. Traditional market headlines will focus on a macro environment that won’t appear favorable, but there’s more to the story in 2023. Smaller investors will leverage their local knowhow and nimble operations to find opportunities in their neighborhoods, and will continue to grow their fix-n-flip or rent businesses.
Demand is shifting away from pandemic boomtowns and major metro areas
Housing demand is shifting away from areas that were pandemic hotspots. Places like Denver, Nashville, and Austin, TX, are now seeing a significant decline in the volume of home sales.
Meanwhile, smaller metros are thriving. Raleigh, NC, for example, has seen a 44% year-over-year increase in demand from New Western investors. Also ripe for growth are Tulsa, OK, and Oklahoma City, each experiencing a 51.4% year-over-year increase in home sales through New Western—despite Redfin showing a decline of 8.4% and 3.6%, respectively.
Top strategies and challenges for investors in 2023
According to New Western’s survey, investors in 2022 used both fix-and-flip and fix-and-rent strategies. And while fix-and-flip was historically the primary strategy for investors, we’re now seeing more balance between the two.
The biggest challenges for real estate investors in 2023:
- Finding properties
- Cost of labor
The top three reasons investors give for purchasing investment properties in 2023:
- Passive income
- Buyer’s market
Top takeaways for real estate agents
The more aware you are of property investors in your area, the more opportunities you have to collaborate with them:
- Finding buyers for their newly-renovated properties or
- Finding qualified renters for their rental property investments
Research your options and show local investors what you can do to help them get the greatest value from their investments—making it more profitable for them to keep doing what they’re doing: renovating outdated properties and increasing the supply of livable ones.