People have much to say about real estate investors, but not all of it is positive. While we can understand where some of the complaints come from, such as those about institutional investors, real estate investors play an integral role in the modern housing market. There may be valid criticisms out there, but by and large, investors—especially individual investors—play a significant role in maintaining the health and viability of real estate at large.
The truth is that real estate investment benefits both the individual and the market, influencing local and national trends. Here’s how investors influence the market the most.
1. Property Upkeep and Values
Investors often purchase distressed or outdated properties and renovate them. This not only improves the quality of the housing but raises local property values. Investors are also diligent in protecting the condition of these properties, preventing occurrences of abandoned or neglected properties that hurt neighborhood safety and value.
Now, before the comments start about lousy landlords, slumlords, and overgrown weeds at rental houses, there are always going to be bad investors who do a poor job of keeping up their properties. However, when properties sit abandoned and neighborhoods become blighted, real estate investors are the ones who step in and take the risks of reinvigorating properties. Yes, investors expect to make a profit, but those profits come with risk, and without investors, there is no progress, no revitalization, and no improvement to the neighborhoods.
2. Alternative Housing Solutions
Some people would bemoan how reliant our housing market is on rentals. But the truth is, rentals are a pillar of the modern market and have remained a stable percentage of total home inventory for the past 60 years. Rentals are not a recent phenomenon, regardless of the popular narrative.
Rental properties remain more accessible than buying and provide the flexibility our society demands. Additionally, the build-to-rent (BTR) model also increases the housing supply. When homeownership is increasingly inaccessible, single-family rentals offer long-term alternatives.
3. Community Involvement
Even out-of-state investors have an impact on their investment markets. No matter where you invest, you will no doubt utilize the assets found in that market.
Investors provide work for local businesses like contractors, builders, real estate agents, and property managers. When you consider the number of homes that are rentals in a given area, multiply that number by thousands of dollars, and you get a sense of the real economic impact that investors have on a community.
By investors taking the risk of investing in a community, thousands of dollars are transferred through the economy into the pockets of small, local businesses that often wouldn’t exist otherwise. These investors provide more housing options to support a growing population and may participate in community development. Ideally, investors contribute to the value of an individual property and the community as a whole.
Further Reading: 8 Reasons Investors Flock to SFRs in a Tough Economy
4. Market Recovery
Let’s talk about the Great Recession. Though conditions vary from market to market, there’s no denying that real estate recovery would’ve been much slower if not for investor activity.
Here’s how investors contributed:
- Purchasing Distressed Properties: Investors bought foreclosed homes and distressed properties, removing them from the market and helping stabilize home prices. Remember, foreclosures pull down property prices. During the Great Recession, many homeowners were underwater on their mortgages! Investor purchases often prevented further price declines and helped absorb the glut of housing inventory.
- Converting Homes to Rentals: Investors converted many foreclosed homes into rental properties. This provided housing for those who lost their homes during the crash and supported the rental market, which saw increased demand as homeownership rates declined. Even those who weren’t directly affected often chose to forego homeownership (and rent instead) to avoid the same fate.
- Stimulating Economic Activity: Real estate investments created jobs for contractors, construction workers, and property managers. The Great Recession affected virtually every job and business, especially those in the real estate sector. Investors’ willingness to patronize real estate-adjacent industries only helped local markets recover.
- Providing Liquidity: Investors provided much-needed liquidity to the housing market by purchasing properties that banks and homeowners struggled to sell. Remember, when the market bottomed out at the height of the subprime mortgage crisis, banks and individual homeowners were left up a creek without a paddle. Investors thawed a frozen market everyone was too scared to jump back into.
- Increasing Market Confidence: Investors’ active participation in the housing market helped restore confidence among other buyers and sellers. Looking back, it may be hard to remember how distressed people were. They were losing their equity, retirement, and sense of home. Investors’ willingness to buy properties encouraged others to see that there was still a future in real estate.
5. Tax Revenue
Yay…taxes! Whether we enjoy paying them or not (likely not), tax revenue plays a key role in helping cities, states, and the nation run smoothly.
Investors’ taxes fund many public services, programs, and infrastructure improvements that increase the quality of life. In some municipalities, notably in the great state of Texas, real estate taxes specifically fund many of the infrastructure projects that attract the next renter and future buyer. Some may complain that Texas has high taxes, but when you consider that those taxes are precisely why Texas has three of the fastest-growing metros in the country, you realize that the juice is worth the squeeze!
Another tax to review is real estate taxes generated by the transaction itself. Real estate transactions generate significant tax revenue for local governments through property taxes, transfer taxes, and other fees—not to mention taxes on rental income.
At the end of the day, many of the issues investors are blamed for are not isolated problems. Higher rental rates correlate to demand, just like property prices do. While there are certainly issues worth addressing, real estate investors benefit the market far more than most people realize!
This article is presented by REI Nation
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
