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Welcome to the Deerwood Realty Show. I'm John Schink, founder and managing broker of Deerwood Realty in St. Louis, Missouri. You know, I've been thinking about the different types of investors. It's definitely become a problem, not that all investors are bad. I don’t mind house flippers or anybody in the space, except things are messed up. Today, an article came along from the John Burns Real Estate Consulting, and it was very fascinating to me. They chronicled the types of different investors we've seen throughout the past 20 years. We'll go through it. I don't know if I think they're 100% right, but I like the idea of making an explanation for who's all involved in the marketplace on the investor side, and maybe how we can quantify that.

So without further ado, I will get to the article. Here it is, it says, “Charting a 22-Year Roller Coaster of Investor Activity” by John Burns Research and Consulting. We'll just go through it, and I'll add my stuff, and we'll go from there. To start with the key takeaways, it says, institutional investors, defined specifically as those who own 100 or more homes, are buying less than 2% of all homes—a much lower percentage than misleading headlines imply. What I like about that is, I disagree entirely with this idea that just because you own more than 100 homes, that makes you a big investor, but people who own 100 homes or less, or 99 homes or less, are somehow smaller investors. If you have 10 people owning 100 homes, that’s a lot of homes being owned by a few people. I think it’s being discounted a bit too heavily how many people are actually investing in single-family homes.

The second part of it says, investors, including second-time and second-home buyers, purchase 25% of all homes sold. Now look, the second-home buyer thing, I don’t know if that means vacation homes, I’m a little bit leery about that. But 25% of all homes sold, if this is truly a situation where it’s supply and demand and we need to just keep building and we'll get our way out of this—which I find to be false. I think that once we did the Airbnb thing, we really changed the single-family home market forever.

Anyway, I don’t think it’s a good thing that investors own 25% of all homes sold. I’m not against investors owning real estate. You can own multifamily homes, there’s no problem there. You can own huge walk-up garden apartments; I don’t care how many units you own in those. And I’m not really against owning one home or two homes, but something's going on where people are kind of cornering them, and it's weird.

So let’s get to it. It says investors own and rent 14.3 million attached and detached US homes. Over the past 22 years, we've identified seven major shifts in investor activity that clarify today's discussion of rental home investors and other investor activity. They have this very nice little graphic here, and it moves; it's pretty slick. So, I encourage you, I've got the link like I said in the description, I encourage you to go look at it.

But it says the seven investor periods that summarize the past 22 years. So in 2002, the baseline investment in 2002, rental investors owned about 9% of all homes in America and were 12% of all home transactions. This was long before Wall Street institutions got involved, and home flipping reality shows became popular. Today, I don’t know when like “Flip This House” came out, but I’ve never been against flipping. I just think that if you're going to buy a flipped house, you better really pay attention to what you’re getting and realize that it’s possible that they are cutting corners, and a flipper will tell you, well, you know, a regular homeowner will do the same thing. I have no problem with that logic whatsoever.

Then we had the easy credit boom, 2003 to 2006. During the period of easy lending that ended in 2006, investors rose to 18% of all real estate transactions. Despite this activity, many homes remained vacant even as homeownership rates increased. In 2006, rental investors still owned about 9% of all homes in the US. However, many of these investors eventually lost their properties to foreclosure. Were they trying to do rentals or were they trying to do flips that failed? A fix-and-flip fail, and I think it's interesting, 2003 to 2006, it sure did seem like people were getting into we're going to flip homes. Before that, I flipped my first home around this time.

Then it says, number three, the Airbnb

home conversion boom, 2007 to today. Airbnb was founded in 2007, and investors continued to convert homes to hotels, aka short-term rentals. Today, the growth in rental homes is hard to estimate, but we're confident it’s less than 2 million homes since there are about 2 million home rental listings each month. This figure includes rooms in homes and homes available for short-term rental before Airbnb was founded. I have—I do not like the Airbnb setup for a lot of reasons.

It says the growth in rental homes is hard to estimate, but we’re confident it is less than 2 million homes since there are about 2 million home rental listings each month. I think that there could be quite a few more. I mean, if you think about it, you’re seeing the ones that are listed; those are the ones that aren’t available to lease, I would think. And then, like, if you have a condo in Florida and it’s all rentals, I don’t care. I mean, it doesn’t bother me at all. But when you have half of a city that’s single-family homes that buyers can’t afford, and they’re all being Airbnb'd, that’s problematic.

So then we had the foreclosure boom, 2007 to 2013. Now, in my opinion, everything kind of—you can be a little bit weak on the overlap. So like 2007 and Airbnb, I don’t think it’s been near the problem that it is now, then, and the foreclosure boom. It says investors rose to 24% of transactions at the peak of the housing crisis in 2013. As subprime and other borrowers in the early 2000s' easy credit boom, investors lost their homes. Large rental home investors emerged, making around 2% of activity and generating press due to their impact on major foreclosure markets like Atlanta, Phoenix.

Okay, so I remember 2007 to 2013, uh, in the business, and what struck me as uncomfortable is when you had these large books of foreclosures, the people that were allowed to buy them and bid on them were institutions, which I think is not right. I think that you should be able to buy a foreclosure as an individual. Now, if it went through HUD, they had this thing where I'm quite sure it was abused where the first 30 days, no one, no investor could even buy the house. But then after 30 days, then you could. Well, nobody after 30 days, I mean, the house had to be terrible. So I don’t really agree with how things went down, I would say.

Overall, it says new technology and data allowed these groups to estimate home values and rents efficiently, facilitating this institutional boom. Now, I don’t know if you’re familiar, but there’s currently a massive lawsuit against Yardi, which is a property management software company, for artificially inflating rents. Now, I don’t want to get into that on this one, but I will say this: I don’t think you need that much tech. Real estate is an old business. I don’t think you really need that much technology to make it work; the numbers have to pencil. So, I disagree with that as well.

It says overall, rental investors increased their ownership of US homes from 9% to 11%, with large investors owning less than 1%. Activity by small investors still dwarfed that of large investors. So, there’s an argument that those people that own less than 100 homes were a massive amount of the business, and they still are.

Then we have number five. I thought this was interesting, the iBuyer boom begins, foreclosure boom ends from 2014 to 2020. Investors fell to 18% of transactions by 2020 as foreclosures declined. A new category of investors called iBuyers grew during this time. iBuyers offer a solution for home sellers willing to accept a lower price in exchange for the certainty of closing. That is not, in my opinion, what was happening. What was happening is you had Wall Street wanting to be involved in the real estate game so badly that they created their own little thing called an iBuyer. There was never a need for an iBuyer, okay? There still isn't. I can literally list any home and sell it within, you know, most of the time, 30 days. Okay, there's no difference here. What they were trying to do is be fixers and flippers but on a massive scale, and I think that there—I think that at some point down the road—I'm not naming names—but when you bought four houses in a subdivision, okay, that allowed you to start fixing the prices. And I think that definitely had an impact on what's been going on.

It said, um, institutional buying activity received a lot of press during this period as the large rental and iBuyer companies became publicly traded.

Yes, it was all big business. It was very fascinating how it was hyped and how I was seeing it and how I was saying, "This is dumb, these people are going to lose their behinds." And I would just—I would just point to Zillow. I would just point to Redfin, all the trusted brands, and how did they do during this time? Um, while this happened, the number of rental homes in America began declining as many small investors sold their homes for a profit. The decline received almost no attention in the press. Well, again, if you could get, you know, some stupid number for your house and you don't have to put up with a tenant, that seems like a pretty good idea.

Now, in number six, it says low-interest-rate home price boom, and see, to me, this overlaps with the iBuyers, okay? Because iBuyers have been around for a long time; they just—they just lost it during the low-interest-rate boom. So investors climbed to 26% of the market by 2022 when rental yields far exceeded treasury yields. This attracted a plethora—sorry, do you know what a plethora is—of capital from all sizes of investors to the rental home industry. Newly built rental homes, known as build-to-rent, also grew dramatically. Now back in 2007, I was talking to people across the country that were doing build-to-rent projects. I thought it was terrible then, I think it's terrible now. Single-family home, rapid home price appreciation, attracted home flippers with homes frequently transacting twice in one year. However, the overall decline in rental homes continued as small rental home investors sold their homes to homeowners for huge gains, which also got little attention, but what do I care what attention it got? And do you think those people aren't going to come back into the market when they smell the blood in the water? They're not stupid.

It says, "Rising rates cause a decline." Investors remained a relatively consistent 23% to 25% of the market through early 2024, with both investor and owner-occupant activity declining due to rising interest rates. Large rental investor groups began selling more homes than they were buying because they had to, and small rental investors continued selling, dropping rental homes to 14.3 million homes, 9.9% of all homes in America. It says investors play a considerable role in the housing market, comprising 25% of residential real estate transactions today, versus just 12% in 2002. And these are all people that there’s a financial incentive to being in the single-family home market, which was traditionally never designed for this, and I think it's terrible.

Now, you say, "Well, John, would you help somebody buy an investment property?" Absolutely, absolutely. But it's my job. I'm not going to—I have no qualms about it; I'll sleep just fine at night. But there should be some stuff being done, especially in the short-term rental world.

So with that, I got a few questions I wanted to talk about, just stuff to think about. Let me get this fixed here. Okay, um, so one of the questions was, "What has been your experience with real estate investing over the past decade?" Well, uh, I flipped a few houses, uh, I worked as a property manager for single-family homes where we rented out, uh, quote-unquote "luxury single-family homes" here in St. Louis, um, so I'm familiar with it. I remember 2007 when, um, there were all these homes and foreclosures, um, and people weren't buying, and they were scared, and it wasn't just—it wasn't just homes; it was an economic downturn; it was—it was pretty awful.

Then the second question, kind of, I don't know if it was put to the point, "How do you think rising interest rates will impact the housing market in the next few years?" Well, I don't know that we're going to see continued rising interest rates. I think we're going to continue to see rising inflation, and then you would say, "Well, doesn't that mean that the Fed will continue to raise rates?" Well, no, I don't think the Fed can raise rates. I think the higher they get, the worse it gets for the economy, uh, to the point where they can't do anything about it. I think it's already started. I think the, uh, inflation is going to continue no matter what they do, uh, they've got their hands tied because spending in Washington's out of control. So, I—I don't—I don't think we have to worry about higher interest rates. I think we have to worry about higher prices due to inflation, which was caused directly by the Fed and, uh, the government by spending way more than they needed to.

Um, "Have you ever considered investing in rental properties for short-term rentals like Airbnb?" Well, if you look at the numbers for an Airbnb, and you come up—you can come up with fascinating things that pencil. Okay, I mean, you can easily outbid any family that wants to buy a home if you can—if you can turn it into a short-term rental. I mean, that's obvious. Okay, uh, on regular rentals, like monthly rentals, it's not the same. Um, the numbers don't pencil as well, and so I don't—I think that's why most people don't go that route.

Um, but anyway, you know, it's neither here—that I—I think that single-family rentals, over time, the Airbnb model, the short-term rental, will—will go the way of the dodo. Uh, I—I really do believe that, or it will—it will—it will end up being a bunch of—bunch of people again, institutional owners versus a mom-and-pop type setup.

Um, "Do you think the rise of iBuyers has made it easier or harder for traditional investors?" Uh, if—if—if nothing else, you could absolutely see the expertise of the local home flipper in pure display when they wouldn't buy the houses that the companies like Opendoor and Zillow and Redfin were buying. They're like, "No, I'm—I'm not going to—not walking into this mess. You can go ahead and have that, you idiot." And it worked out. I mean, Zillow lost $435 million in a quarter, um, and they're—they're still considered such a great—um, brand and real estate when, in all honesty, they—they're—um, "How do you believe technology will shape the future of real estate investing?" I don't think it'll be—I think real estate's an old business. I—I know people have tried to disrupt it for years. I'm not worried. Okay, even with all the things that are coming down the pipe, I'm not worried about the situation. Uh, the strongest will survive and thrive and figure it out. So I don't see any new technology really changing real estate investing.

Um, "What strategies have you find effective in navigating the current housing market?" Well, look, if you see a house that you like, as long as you can financially afford it, go make an offer. That's—no, no big deal. If I've got a house for sale, I'm going to ask what I think that the market can—can—can get for the house. This doesn't change. My strategy doesn't really change. When I work with buyers, we look for value. What are we getting for our money in the home? And then, on the selling side, it's, what—what should we expect to get on the home? It's—it's not—it's not changed at all. Um, no problems.

And then it says, "How has your perception of institutional investors changed over the years?" Well, I—I used to not be as anti-corporation as I am now. Um, when you see—the government and the way the—uh, corporations—uh, literally like just—they're puppeteers. I mean, they just literally lead these—uh, people in government around. Um, it's just—it's just disgusting, and so I—I don't—I don't have any respect for the institutional investor at all, and, um, I don't feel bad about it.

So on that fun note, I'm going to head on out. Hey, look, it's been a while. I'm sorry; I'm still trying to get my schedule in order. Uh, thank you for sticking with me. Thank you for watching, and thank you for being around as long as you have. Um, here's to a good, strong year of—uh, growth on YouTube and the other platforms. I'm very, very excited about X, um, and Rumble, and, uh, wherever you want to watch me, I should be around. So just look for the—the episode. Thank you for watching, thank you for listening, and I will catch you on the next one.