Real estate investing has become an increasingly popular way for individuals to build wealth and generate passive income streams. With the rise of house flipping shows and websites like Zillow, more people are paying attention to real estate markets and trends across the country. Real estate investors large and small have a significant collective impact on local markets and the overall national real estate landscape. Here is an in-depth look at how real estate investing is shaping the nationwide real estate market.

The Rise of Institutional Investors

One of the biggest trends in real estate over the past decade has been the rise of institutional investors. Major investment firms like Blackstone Group and Invitation Homes have been buying up huge numbers of single-family homes, particularly in hot markets like Phoenix, Atlanta, and Miami. In 2021 alone, institutional investors bought over 80,000 homes valued at nearly $63 billion. That accounted for 28% of all home sales in the U.S.

These large investment firms have major buying power, often making all-cash offers at above asking price. This drives up sale prices and reduces inventory, pricing many regular homebuyers out of the market. The increased institutional money in real estate also leads to quicker price appreciation and the phenomenon known as “clustering,” where investors target specific neighborhoods en masse.

“The growth of mega investment firms and REITs buying up swaths of real estate is a double-edged sword. On one hand, it pumps billions of dollars into housing markets and develops massive amounts of new rental housing stock. But it also squeezes out smaller buyers and consolidates property ownership into fewer hands. Here in Columbus, we’ve seen companies like Invitation Homes buying houses by the dozen, often with all-cash offers above listing price. Individual homebuyers can’t compete with that kind of relentless purchasing power. While I understand the profitable business model, I worry about the long-term effects on affordability and equitable access to homeownership if these massive investors continue to dominate markets.” – Bennett Heyn, CEO Sell House Columbus Ohio

The Flipper Phenomenon

Another group fueling real estate markets across America is flippers – real estate investors who purchase and renovate homes specifically to resell for profit. Shows like Flip or Flop have glamorized the practice and inspired many new investors to try their hand at flipping.

In hot markets like Boise, Phoenix, and Atlanta, flippers account for as much as 1 in 5 home sales. They target homes priced below market value, often outbidding regular homebuyers. Like institutional investors, flippers reduce available inventory which can intensify bidding wars. Their influx of renovated homes also raises neighborhood comps and pricing expectations overall.

While flipping is risky, successful flips mean profits which are often reinvested. Serial flippers constantly searching for the next project amplify their market impact over time. Markets with low inventory and rapid price growth tend to attract the most flippers, further accelerating prices.

“There’s no question that fixing up and flipping homes can be an extremely lucrative business if done right. The key is buying low, renovating smart, and knowing when to sell high. The housing markets with the biggest margins for flippers are usually ones with solid foundational value and upward growth trajectory. I’ve seen flippers make six-figures on a single mid-range house in hot markets like Boise or Phoenix—the potential is incredible. Of course, there’s work involved, nothing is ever guaranteed, and flippers can also lose money if they misread the market. But for investors willing to take those calculated risks, real estate flipping represents one of the most profitable ways to capitalize on your sweat equity.” – Erik Wright, CEO New Horizon Home Buyers

The Prevalence of Real Estate Investment Trusts

One lesser-known way real estate investors are influencing housing markets is through real estate investment trusts or REITs. REITs are companies that own and manage income-generating real estate. They allow both institutional and retail investors to gain exposure to real estate without having to buy or manage properties directly.

In 2020, equity REITs held assets valued at nearly $2 trillion. The largest REITs own hundreds of rental properties, malls, cell towers, and commercial real estate nationwide. Their large-scale purchases and sales can sway commercial and multi-family housing markets. With their wide pools of investor capital, REITs often act as market-makers.

REITs expand real estate investing access to Wall Street and the average Joe. But their on-demand liquidity also means investors can quickly cash out, creating risk of oversupply if REITs unload properties en masse. Thus REIT activity can destabilize markets during economic downturns.

Small-Scale Investors Add Up

While mega investment firms and public REITs grab headlines, small-scale real estate investors also impact the market. Someone who owns a few single-family rentals or flips one home per year is participating in the nationwide housing market. When an individual buys their first rental property or retires on passive real estate investments, it’s a micro version of Blackstone buying thousands of houses.

Approximately 8-9 million Americans directly own investment properties for rental income, flipping, or equity growth. Added together, the buying power of all these small-time investors moves prices and absorbs housing inventory. Areas like the Midwest with relatively affordable housing have seen some of the highest jumps in investor ownership.

Platforms like Fundrise have also enabled everyday investors to buy fractional shares of larger commercial properties. This further democratizes real estate investing and concentrates more market impact in the hands of individuals. Even micro-investing through real estate crowdfunding aggregates to become a noticeable force.

A Mixed Impact

The influx of real estate investors has had a mixed impact on the nationwide housing market. On the one hand, it provides liquidity and opportunity. Real estate investors allow more people to access wealth-building through property ownership. Increased demand pushes up values, which benefits sellers and homeowners.

However, intense investor competition also priced many first-time homebuyers out of the market. The Fed’s moves to curb real estate investment activity shows regulators are growing concerned about its market dominance. Outsized investor influence raises questions about the health and stability of price growth.

Nonetheless, real estate investing is now firmly embedded in the fabric of the housing market. From massive investment firms to crowdsourced REITs, investor demand pools at every level are moving markets. Regulating speculative activity while still encouraging responsible investment is crucial to avoiding a value bubble. Moderation and oversight will remain necessary as investors shape real estate at local and national scales.

Published by: Nelly Chavez