Real Estate Investor Optimism Soars

Why 60% of Investors See a Brighter Future Ahead

Author

Vlad Shostak
July 22, 2024

TL;DR

  • Investor Sentiment Improves: Investor sentiment jumped by 16% from the previous quarter. 60% of investors view the market as better or much better than a year ago.

  • Optimistic Future: 61% of investors expect continued improvement, with only 14% expecting a decline.

  • Rental vs. Fix-and-Flip: Rental property investors are less positive than fix-and-flip investors due to flattening or declining rental prices.

  • Insurance Concerns: Over 84% of investors noted rising insurance costs or unavailability of insurance as a major influence on their decisions. 68% missed investment opportunities due to these issues.

  • Regional Insurance Issues: In California, all respondents cited insurance issues, with 73% losing deals. In Florida, 83% factored insurance into their plans, with 67% missing opportunities.

  • Squatter Problems: 76% of investors cited squatters as an issue. 90% of fix-and-flip investors faced squatter problems, compared to 50% of rental property investors.

  • Fix-and-Flip Optimism: 73% of flippers view the market as better than a year ago, and 75% expect improvement. In comparison, only 35% of rental property investors share this optimism.

  • Economic Recession Concerns: 75% of flippers believe a recession is likely this year, compared to 35% of rental property owners.

  • Home Price Expectations: Both groups expect home prices to rise, with 88% of flippers and 61% of rental property owners anticipating increases.

  • Primary Investment Locations: 92% of flippers and 86% of rental property investors plan to continue investing primarily in their home states.

  • Key Challenges: High financing costs (74%), lack of inventory (45%), and competition from institutional investors (44%) are major challenges. Rising home prices were cited by 35% of respondents.

  • Future Challenges: Investors expect financing costs (67%), inventory issues (42%), and competition from institutional and consumer homebuyers to remain significant challenges.

  • Flippers vs. Rental Investors: Flippers cited institutional competition more frequently (53%) than rental property investors (35%). Rental investors cited rising home prices at a higher rate (53%) than flippers (21%).

  • Market Nuances: Increased flipping activity and improved margins fuel flipper optimism, while flat/declining rent rates and rising acquisition costs impact rental investors negatively.

What is the RCN Capital/CJ Patrick Investor Sentiment Index™ (ISI)

RNC Capital just released their July RCN Capital/CJ Patrick Investor Sentiment Index™ (ISI) Report

The ISI tracks the pulse of real estate investors nationwide. Based on the quarterly RCN Capital Investor Sentiment Survey of residential real estate investors, the ISI focuses on four key questions:

  • Current Market Outlook: How does the environment for residential real estate investing compare to one year ago?

  • Future Market Outlook: What’s your outlook for residential real estate investing over the next 6 months compared to today?

  • Expected Home Price Increases: What do you expect home prices to do over the next 6 months?

  • Number of Properties Compared to Past 12 Months: How does the number of properties you plan to invest in over the next 12 months compare to the number you’ve invested in over the past 12 months?

The Summer 2024 Investor Sentiment Survey is the fifth quarterly report from RCN Capital.

Real estate investor sentiment jumped by 16% from the previous quarter, according to the new RCN Capital/CJ Patrick Company Investor Sentiment Index™.

Sixty percent of investors viewed today’s market as better or much better than a year ago, compared to only 20% who felt it was worse or much worse.

Investors were equally optimistic about the future, with 61% expecting continued improvement and only 14% expecting a decline. These figures represent the highest positive responses and lowest negative responses since the survey began.

“Despite numerous challenges, real estate investors feel much better about the investing environment today than they have over the past year and are equally optimistic about where the market is heading,” said RCN Capital CEO Jeffrey Tesch.

“Rental property investors are slightly less positive than fix-and-flip investors, likely due to rental prices flattening and even declining in many markets.”

The Summer 2024 Investor Sentiment Survey from RCN Capital, conducted by market intelligence firm CJ Patrick Company,

again highlighted growing concerns among investors about increasing insurance costs or the unavailability of insurance in markets subject to frequent extreme weather events.

Over 84% of investors noted that rising insurance costs or the unavailability of insurance coverage influenced their buying and selling decisions. Nearly 68% said these insurance issues caused them to miss out on investment opportunities, significantly higher than in the previous quarter.

This problem is particularly acute for investors in states with high levels of extreme weather events.

Photo by Don Lodge on Unsplash

All respondents investing in California properties cited insurance issues as a factor in their decision-making,

and 73% said insurance problems had cost them a deal.

In Florida, 83% acknowledged factoring insurance into their investment planning, and 67% noted that insurance issues had caused them to miss out on an opportunity.

Another growing issue is the prevalence of squatters, cited by 76% of respondents.

About 53% had experienced problems with squatters personally.

The issue is more severe for fix-and-flip investors, with 90% citing squatters as a problem, compared to just under 50% of rental property investors.

More than 50% of investors experience an issue with squatters, leg day is not for everyone. Meghan Holmes.

Why Fix-and-Flip Investors Are Thriving While Rental Property Owners Struggle

There is a significant contrast between the market sentiment and outlook of fix-and-flip investors and rental property investors.

Flippers are overwhelmingly positive, with 73% saying the market today is better or much better than a year ago, compared to only 35% of rental property investors.

Similarly, 75% of flippers expect market conditions to improve, while only 37% of rental property owners share this sentiment.

Only 11% of flippers felt conditions today were worse than a year ago, while 36% of rental property investors responded negatively.

Photo by Matt Flores on Unsplash

These differing opinions are not based on expectations for the U.S. economy.

Despite being more optimistic about the market, 75% of flippers believe the economy is likely to enter a recession this year, while only 35% of rental property owners do.

Both groups expect home prices to continue rising, with 88% of flippers and 61% of rental property owners anticipating price increases.

Most investors — 92% of flippers and 86% of rental property investors — plan to continue investing primarily in their home states.

Investors Battle High Costs and Low Inventory in Today’s Market

Investors cited many of the same factors as major challenges to their success as in previous surveys but reflected some changes in current market dynamics.

The high cost of financing was mentioned most frequently, by 74% of respondents. Lack of inventory (45%) replaced rising home prices (35%) as the second-most cited challenge.

Investors continue to cite competition from institutional investors (44%) and traditional consumer homebuyers (26%) as major issues.

Looking ahead, investors see slight shifts in market conditions. Only 67% noted the high cost of financing as a top concern, and inventory issues (42%) and rising prices (32%) were cited less often.

On the other hand, respondents expect more competition from institutional (47%) and consumer homebuyers (29%) in the next six months.

These trends are similar for both flippers and rental property investors. Financing costs were noted by 77% of flippers and 76% of rental investors.

Lack of inventory was cited by 46% of flippers and 45% of rental investors. However, there are significant differences in key challenges. Flippers cited competition from institutions much more frequently (53%) than rental property investors (35%).

Conversely, rental property investors complained about rising home prices at more than twice the rate (53%) of flippers (21%).

“It’s interesting to see some of the nuances in the investor sentiment data and consider the implications,” noted Rick Sharga, CJ Patrick Company CEO.

“Recent reports of increased flipping activity and improvements in flippers’ gross margins may be fueling optimism among flippers. Meanwhile, flat and declining rent rates, an influx of new apartments, and rising property acquisition costs may be dimming the outlook for some rental property investors.”

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