All-Cash Offers From Big Investors Recede, Giving Mom and Pops an Edge in the Housing Market

Cash was king during the hypercompetitive pandemic years as investors swooped in on the housing market with wads of cash. Now, the tide is turning.

The share of investors purchasing homes with cash fell to 64% in the first quarter of 2024, according to a recent Realtor.com® report. That’s quite a difference from the fourth quarter of 2021—when a whopping 69.7% of investors purchased with no mortgage contingency to help them win ultracompetitive bidding wars—and the lowest it’s been since 2008.

This is good news for regular homebuyers, who won’t have to compete with as many investors plunking down cold, hard cash.

Why cash is no longer king: Investors are changing

One reason more investors are using financing, despite surging interest rates, is because the majority are now independent investors rather than big corporations.

Small investors (defined as having purchased 10 or fewer homes since 2001) made up 62.6% of investor purchases from January to March 2024. That’s the highest small-investor share in this data’s history since 2001, according to the Realtor.com report.

The rise of mom and pop investors is a good thing, according to G. Brian Davis, real estate investor and co-founder of property management software SparkRental.

“It’s better for everyone involved that institutional money is withdrawing from the single-family home space,” he says. “It creates less artificial demand among buyers, therefore reducing some upward pressure on prices. It also leaves room for mom and pop investors to operate.”

Brie Schmidt, owner and managing broker of Second City Real Estate in Chicago, says 90% of her transactions these days are with mom and pop investors, who are more apt to use financing.

“If an investment property in your market costs $200,000, you can buy one in all cash or put 20% down and buy five properties with the same amount of money,” Schmidt says. “It makes sense to maximize your capital and acquire more cash-flowing properties through financing.”

Cash offers could also be fewer and farther between because of the economy.

“Many consumers seem to be holding on to what liquid funds they have right now and using financing so they do not become cash-poor,” says Robert Dodson, sales manager and broker at Charles Burt Realtors in Joplin, MO. “I believe that directly correlates with the state of the economy and inflation.”

Attitudes toward all-cash offers are shifting

The attitude toward debt and mortgages is also evolving, according to Schmidt.

“The trend of utilizing financing to acquire investment properties coincides with the FIRE movement—which stands for financial independence, retire early—and how popular it has become,” Schmidt explains.

Many FIRE followers finance real estate investments to build their portfolios and help fund early retirement.

Schmidt also believes fewer people are buying in cash due to the growing pushback on the debt-free lifestyle promoted by financial gurus like Dave Ramsey in recent years.

“There’s a shift to using debt responsibly,” Schmidt says. “Not all debt is bad debt, and using it wisely can accelerate your retirement plans.”

Cities with the most all-cash investor purchases

Of the 100 largest metros, the areas where the highest share of investors paying all cash in the first quarter of 2024 were Portland-South Portland, ME (81.3%), Albuquerque, NM (81.2%), Toledo, OH (80.5%), McAllen-Edinburg-Mission, TX (79.5%), and Ogden-Clearfield, UT (79.0%).

“All-cash investor purchases are more common in relatively low-priced areas and areas popular for second homes/vacation homes,” says Realtor.com senior economist Hannah Jones. Even  more expensive markets such as New York City still see “middle-of-the-pack all-cash investor share.”

In the first quarter of 2024, 64.5% of investors in the New York City metro area paid in all cash, just above the national investor cash share. This is a 1.6 percentage point decrease compared with one year before, and slightly better than the national decline of 2.1 percentage points in the same period.

The perks of financing a home purchase

There are many advantages to financing a home purchase, such as tax deductions on mortgage interest. Financing incentives can also give investors a leg up.

“Last year, a [Fannie Mae] program came out that allows 5% down on two- to four-unit properties if you occupy it for one year,” Schmidt explains.

She says where she’s based in Chicago, house hackers frequently use this program. They buy multifamily homes, then live in one unit while they rent the others out. After a year or so, they “rinse and repeat” by buying another property, moving in, and doing the same thing.

“It’s a common strategy to ‘stack’ properties this way,” Schmidt says.

Finally, financing can buy investors more time than a cash offer would.

“Financing tends to create a longer timeline for closing,” says Dodson. “This allows buyers more due diligence periods for inspections, appraisal, and property data review, affording the investor the opportunity to become more educated on the asset.”