According to the Winter 2023 Investor Sentiment Survey from RCN Capital, conducted by market intelligence firm CJ Patrick Company, there were significant differences of opinion found between fix-and-flip investors and rental property owners about the current state of real estate investing.
Fifty percent of property flippers polled felt things were better today than last year, and 51% expect things to improve over the next six months. The poll also found that just 20% of rental property owners felt conditions were better today, and only 22% expect things to improve over the next six months. Forty-eight percent of rental property owners felt conditions were worse today compared to 26% of flippers. Rental owners are also less optimistic about future conditions, with 23% expecting things to worsen, while only 14% of flippers share that concern.
Overall, after jumping from 30% to 39% in the Fall Survey, investor optimism was basically flat with 40% of the respondents saying the environment for investing was better than a year ago. Slightly fewer felt that things were worse: 33%, down from 38% in the Fall and 37% in the Spring.
"Rising home prices are helping improve profits for fix-and-flip investors, while asking rents have flattened out and even declined in some markets compared to last year." said RCN Capital CEO Jeffrey Tesch. "These factors probably play a large role in the opposite trends we're seeing among real estate investors today."
The Winter 2023 Investor Sentiment Survey is the third quarterly report from RCN Capital, taking the pulse of real estate investors across the country, identifying market challenges and opportunities, and getting feedback on current trends and events.
Investors cited the same factors as major challenges to their success as in previous surveys:
- The excessive cost of financing was mentioned by 74% of respondents
- 43% noted the lack of inventory of properties for sale
- 35% said that competition from institutional investors was a problem and will continue to be later in the year.
Investors may believe that finance costs are beginning to improve, as only 67% of respondents believed that high loan costs will still be a major challenge in six months.
Conversely, the percentage of investors who believe that limited inventory will still be a problem in the future was slightly higher, at 46%. Perhaps due to that expectation, over 82% of investors expect to buy the same number of properties or less in the next year. Fix-and-flip and rental property investors outlooks are similar in that regard: 49% of flippers and 47% of rental property investors plan to buy the same number of properties in the next year; 37% and 33% respectively expect to buy fewer.
"One new finding in the Winter survey is that insurance is becoming more of a factor for investors today, and a major concern going forward," noted Rick Sharga, CJ Patrick Company CEO. "Almost 70% of the respondents agreed that rising premiums and limited availability of insurance were factoring into their decisions about investing, and 62% noted that these factors were somewhat of a hindrance in their ability to buy and sell properties."
Investors continued to see the impact of higher mortgage rates in their local markets. Over 92% have seen either a decline in demand for owner-occupied homes, an increase in demand for rental properties, or both in the markets where they invest.
Investors were slightly less pessimistic about the U.S. economy in the Winter Survey compared to the Fall. Almost 43% of the respondents expect the country to enter a recession in 2024, down from 53% in the prior survey. Just under 42% were unsure, while 15% don't expect a recession. Investors still believe that home prices will continue to increase–almost 50% expect home prices to go up, 31% believe prices will remain about the same, and only 18% believe they'll decrease.
For the second time in the last three surveys, more investors claimed to focus on buying rental properties than fixing-and-flipping homes. Forty six percent of the respondents buy and rent properties, while 32% fix-and-flip properties to home buyers. Wholesaling–securing the rights to sell a property without taking title–may be a growing trend, as 22% of respondents listed that practice as their primary type of investment activity.
As in the previous survey, the majority of investors purchase their investment properties close to home–39% purchase within their hometown, and 84% within their home state. California, Florida, Texas, and New York with the states most frequently cited by respondents as where they invest today, and plan to invest over the next year.
RCN Capital is a South Windsor, Connecticut-based national, direct, private lender. Established in 2010, RCN provides commercial loans for the purchase or refinance of non-owner-occupied residential properties. The company specializes in new construction financing, short-term fix & flip and bridge financing, and long-term rental financing for real estate investors.
Founded in 2019, CJ Patrick Company is a market intelligence and business advisory firm collaborating with companies in the real estate and mortgage industries.