Who Is Buying All the Houses? A Breakdown of Buyers

The current housing market often prompts questions from individuals seeking to understand the competitive landscape. Many prospective homeowners observe that entities beyond typical individual buyers are actively acquiring properties, which can influence market dynamics. This activity extends beyond traditional family purchases, contributing to a diverse array of buyers in residential real estate. Understanding these various participants helps clarify who is purchasing homes today.

Institutional and Corporate Acquisitions

Large-scale institutional investors and corporations have become significant participants in the residential real estate market. These entities often include Real Estate Investment Trusts (REITs), private equity firms, and large asset management companies. Their primary motivation for acquiring single-family homes is to generate steady rental income and build extensive rental portfolios.

REITs are companies that own or finance income-producing real estate. To maintain their status, REITs must distribute at least 90% of their taxable income to shareholders annually. This allows them to avoid corporate income taxes at the entity level, as income is taxed only at the shareholder level, preventing double taxation. REITs can also claim depreciation on their owned properties, which further reduces their taxable income.

Private equity firms and other asset managers also engage in large-scale acquisitions. They often target specific geographic markets with favorable demographic trends or strong rental demand. Their strategies involve bulk purchases of properties directly from builders or through portfolio sales from other investors. These firms benefit from economies of scale in property management and maintenance across their vast holdings.

Individual and Small-Scale Investments

Beyond large corporations, individual investors and smaller groups also play a substantial role in the housing market. These buyers operate on a smaller scale, often owning fewer than ten properties. Their motivations vary, including “flipping” properties for rapid resale profit, acquiring homes for long-term rental income, or securing properties for short-term vacation rentals.

For those engaged in house flipping, the goal is to buy a property, perform renovations, and then sell it quickly for a profit. Profits from properties bought and sold within 12 months are considered short-term capital gains and are taxed at the individual’s ordinary income tax rate. If held for more than one year, profits may qualify for lower long-term capital gains tax rates. Active house flippers may also be subject to self-employment taxes if their activities are viewed as a business.

Financing for these smaller-scale investments often involves conventional mortgages. Hard money loans are also common, particularly for flipping projects. These are short-term loans secured by the property itself, with higher interest rates than traditional mortgages. They can close quickly, often within 10 business days, focusing on the property’s value. Individual investors may also use home equity loans or lines of credit from existing properties to fund acquisitions or renovations.

For long-term rental property owners, income and expenses are reported on IRS Schedule E (Supplemental Income and Loss) as part of their individual income tax return (Form 1040). This allows landlords to deduct various expenses, such as mortgage interest, property taxes, and depreciation, against their rental income. The ability to deduct expenses can reduce the overall taxable income from these investments.

Technology-Driven Purchase Models

A distinct category of non-traditional buyers includes “iBuyers,” which are technology-driven companies that streamline the home-selling process. The “i” in iBuyer signifies “instant,” reflecting their business model centered on quick transactions. These companies use algorithms and data analytics to provide rapid, all-cash offers to sellers, often without an initial in-person viewing.

The primary purpose of iBuyers is to simplify and accelerate the home-selling experience. They appeal to sellers who prioritize speed and convenience over maximizing their sale price. After purchasing a home, iBuyers perform minor cosmetic repairs or necessary updates before quickly reselling the property. Their business model emphasizes volume over high-profit margins on individual sales, aiming for a rapid turnaround, often within 90 days.

Sellers engaging with iBuyers pay a service fee, which can range from 5% to 10% of the home’s sale price. This fee covers the iBuyer’s operational costs, including holding expenses like property taxes and utilities. It is often comparable to or slightly higher than traditional real estate agent commissions. Additionally, iBuyers may deduct estimated repair costs from the final offer price after a home inspection.

International Capital in Housing

International buyers and foreign capital represent another segment influencing the U.S. housing market. These buyers include non-resident individuals, foreign corporations, and sovereign wealth funds. Their motivations for purchasing U.S. residential real estate are varied, often encompassing investment diversification, seeking a stable environment for capital, or capitalizing on currency fluctuations.

A common characteristic of these purchases is a higher propensity for all-cash transactions, exceeding 50% of foreign buyer purchases. This preference for cash can give international buyers a competitive advantage in certain markets. They often target specific geographic areas, such as major metropolitan centers or desirable vacation destinations, and particular property types, including luxury homes.

The Foreign Investment in Real Property Tax Act (FIRPTA) requires that when a foreign person sells U.S. real property interests, the buyer must withhold 15% of the gross sale price and remit it to the Internal Revenue Service (IRS). Income generated from rental properties owned by foreign persons is also subject to U.S. income tax. Foreign owners can elect to be taxed on a net basis, allowing them to deduct expenses like property taxes, mortgage interest, and management fees, similar to U.S. landlords.