Investors are adding more competition to an already-scorching housing market, pushing homes further out of reach for average Americans. They’re buying homes to rent with Airbnb.
For years, entrepreneurial Americans have been hustling to amass small portfolios of short-term-rental properties. That investment strategy has been the driver behind countless rags-to-riches stories and heralded as a path to financial freedom.
Now, big-time investors are employing the same strategy: scooping up masses of potential rental properties and hoping to make bank off Airbnb.
ReAlpha, an investment company in Ohio, is planning to spend as much as $1.5 billion on short-term-rental properties, Bloomberg reported on Friday, citing a recent filing.
CEO Giri Devanur told Bloomberg that the budget would cover about 5,000 homes. The company plans to identify the best investment properties by using artificial-intelligence software and targeting already hot real-estate markets, including Miami, Austin, and Dallas.
“We have spoken to a bunch of banks where we can buy hundreds of properties at a time,” Devanur said. The company intends to snag properties at a discount following the end of the federal foreclosure moratorium, which President Joe Biden extended through July.
The decision to buy up vacation rentals is likely a bet that the surge of interest in travel will continue.
The real-estate market was upended by pandemic-inspired mass migration, the rise of remote work, and record-low mortgage rates.
There are so few homes on the market that houses could run out in just two and a half months, the National Association of Realtors said. The organization also found that the median home price ballooned to $350,300 in May, up 23.6% from May 2020.
The combination of low inventory and steep prices fosters a level of competition marked by all-cash offers and bidding wars. Houses are selling far above asking price and within days. And the buyers aren’t always hopeful first-time house hunters.
Sometimes, it’s a $50 billion private-equity firm. Large-scale investors, such as Blackstone and Invitation Homes, have been snapping up homes across the country to rent out for a profit, beating out everyday Americans in bidding wars by offering cash and skipping due diligence. In other instances, it’s a company nabbing homes at below-market prices for cash, only to turn around and sell them for tens of thousands more weeks later.
Pension funds and foreign-government-run funds also offer competition, The Wall Street Journal recently reported.
Experts have previously told Insider that it may be best to stay out of the housing market right now for that very reason. The cutthroat landscape is goading average buyers into overspending on a home that may not meet their needs.
One more large-scale investor buying up $1.5 billion worth of real estate to try to profit off Airbnb bookings only helps put the American dream of homeownership further out of reach for many.
Originally appeared on Business Insider
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