What is Motivating Distressed-Property Investors?

A significant portion of investors who purchased homes in foreclosure this year refurbished the property and rented it back to the occupant, preventing eviction, according to a report from a large online distressed-real-estate auctioneer.

The majority of investors who have purchased a distressed property during the first quarter of 2021 via the online marketplace Auction.com have rehabbed and resold it to owner-occupants, Auction reports in its Q1 2021 Buyer Insights Report.

"Rehabbing and reselling to owner-occupants was the primary investing strategy for 57% of buyers," Auction reported. "Meanwhile, 38% of buyers said their primary investing strategy involved acquiring investment property as rentals. Among those rental investors, 62% said that they have rented back to current occupants of occupied homes."

Most of the investors who responded to Auction's survey were small-scale—87% had purchased five or fewer investment homes in 2020. The majority, 78%, purchased properties that were within their own metro. Of the renter-occupied properties that went into foreclosure, 62% bought at auction were re-rented to the existing occupants.

“A transparent and democratized distressed-property marketplace attracts a diverse set of mostly local real estate investors who are committed to doing good in the communities where they invest,” said Jason Allnutt, Auction.com CEO. “Not surprisingly, these local buyers are the best option for responsibly returning distressed properties to retail buyers and renters. Sixty-two percent of our buyers report they have successfully avoided an eviction by keeping the occupants in the homes as renters.”

Auction reports 40% of the respondents said they believe their local market is overvalued with a correction possible, but 74% think home prices will continue to rise by at least 3% in 2021.

Almost all, 93%, buyers expect their 2021 acquisitions to increase or remain the same compared to their 2020 acquisitions. Creating that new source of income and building wealth ranked as the top investing motivations for most buyers, Auction reported, but a combined 13% of buyers said "improving homes and neighborhoods or investing back into the community" was their top motivation for investing.