With clients in the United States, Canada, and the United Kingdom, Benjamin Thompson Kirk has a wealth of experience and expertise of the real estate business. This article will focus on the United States real estate market, exploring explosive growth in the buy-to-rent market.
According to a Bloomberg report, the US housing boom is creating new opportunities for real estate tycoons, enabling them to use their own homes to finance purchases of second, third or fourth homes, capitalizing on a surge in rental demand.
With home prices skyrocketing, many property owners have realized significant equity windfalls, with cash-out refinancings reaching levels not seen since the peak of the mid-2000s housing boom. While some homeowners have ploughed these unexpected gains into a vacation or remodel, others have put that money to work by purchasing properties and renting them out.
Keshav Agrawal is a 33-year-old resident of California who extracted $300,000 from the family home in late 2019, putting the money towards purchasing five rental properties in more modestly priced Atlanta. With those properties having doubled in value, Agrawal is peeling off their equity to purchase more, as he puts it “growing exponentially off of one refinance”.
Across the United States today, fledgling investors are harnessing the power of home price inflation, building wealth by becoming landlords. On the flip side, they are contributing to soaring property prices, particularly for starter homes that are in such short supply. However, even this works in the second-homebuyer’s favor, provided they can afford to pay, since Americans who have been priced out of homeownership are fueling demand for rentals.
Home prices in the United States increased by 18% in 2021. With an ever-growing presence of institutional investors, some speculate that a bubble could be forming.
A real estate bubble is essentially a situation where the overall value of the housing market increases without material changes to support it. This results in house prices becoming extremely volatile. If the housing bubble pops, as occurred during the 2009 Financial Crisis, the ramifications can be devastating. Between 2007 and 2009, around 3.8 million households were foreclosed, impacting around 10 million people – joblessness and exorbitant interest rates triggering a surge in homelessness.
As of 2021, investment firms accounted for one in seven US property purchases, representing a 2.8% increase in their share of the market the previous year. From a wealth-building perspective, homeownership remains one of the most effective conduits. Some are calling for a change in government policy, such as imposition of higher property taxes on investor-owned single-family homes, to make the market more equitable for families and first-home buyers.
