High financing costs are top of mind for residential investors

Investors indicate biggest challenges in new RCN Capital study

The high cost of financing was cited by residential real estate investors as the biggest challenge currently facing their business, according to a new report from RCN Capital.

The report marks the inaugural iteration of a new quarterly study from RCN, which polls real estate investors nationwide to assess the “shifting dynamics and sentiments within the real estate investing landscape.” Data for the report was gleaned from a survey performed by RCN Capital and market intelligence consultancy CJ Patrick Co. Fifty-three percent of respondents indicated that they were primarily buy-and-hold rental-property investors, while 29% classified themselves as primarily fix-and-flippers and 18% as wholesalers. The majority were small investors, with 67% indicating that they planned to invest in five properties or fewer in the next 12 months.

Asked to identify the three biggest challenges currently facing the business of real estate investing, 72.7% of participants in the poll cited high financing costs, which garnered by far the largest share of responses. The next three responses might be reflective of the presently supply-starved landscape, with lack of inventory in second place at 47.7% of responses; competition from institutional investors in third at 33.9%; and competition from consumer homebuyers in fourth at 26%. Difficulty securing a loan was the fifth most-common response at 24%.

Investors foresee the same five challenges (and in the same order) remaining near the top of their concerns six months from now. Credit costs, again, led the list with a 68.3% share of responses. Interestingly, concern about competition from institutional investors grew by a 10% share when asked about six months from now compared to today, the largest jump among all answers.

Also notable is that, despite the marked downward turn in the real estate market in the past 12 months, 32.2% of survey respondents said that the environment for residential real estate investing is about the same as it was one year ago. Another 27% said they believe that the investment environment is better now than it was one year prior. Some 24.3% said the environment is worse, with another 10.2% saying it is much worse.

A plurality of investors don’t see much changing in the next six months, with 43.8% indicating that their outlook for residential investing during this time frame compared to today is about the same. More than a quarter (25.3%) said the future looked better, while 19.7% believed it will be worse.

Fix-and-flippers are much more optimistic than buy-and-hold investors about potential opportunities moving forward. Thirty-eight percent of flippers believe that conditions will improve, while 19% think they’ll take a turn for the worse. On the flipside, only 19% of long-term rental investors believe things are on the uptick, with 31% saying they will worsen in the coming months.


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