Mandy King fell in love with the house as soon as she started walking up the driveway. The curb appeal, the cute detached garage, the spot on the lawn where she could already picture planting a garden.
But King and her husband never got that dream home, located just off Whitman's Pond in Weymouth. She just accepted it as part of the home-buying process. But three years later, after they purchased a starter home in Randolph instead, she was driving past that same house when she noticed a "for sale" sign on the lawn.
Curious, King did a quick online search. She found that the home had been sold two subsequent times since she was outbid. Each time, the price had increased by about 2% or 3%.
"It was sad, and frustrating," King said. "We would have loved that home and raised a family there. Clearly, these people just wanted to make a buck."
King's story is not uncommon. Real estate investors — people who purchase and quickly resell homes for profit, sometimes called "house flippers" — are a key hurdle for many looking to break into the housing market.
"Investors will gobble up a lot of properties that would otherwise go to younger people looking to own a home," said Carla DiMatteo, who was a real estate agent in Cambridge for many years. "There is this idea that you need a magic number in terms of your savings, and that if you can afford to put 20% down, you're going to get a house. People overlook these 'professionals' who they're going to be competing with."
According to a 2019 report by the data analysis website CoreLogic, the share of home sales bought by investors the year before reached its highest level in two decades. By the end of 2018, the investment rate in the U.S. housing market had reached 11.3%, which was the highest rate since CoreLogic started tracking the data in 1999.
Smaller investors are responsible for an overall increase in investor activity across the nation, the report noted. This is in sharp contrast to the rise in large institutional investor corporations in the decades prior. These smaller investors, defined as those who purchased 10 homes or fewer over the past 20 years, grew from 48% of all investor-purchased homes in 2013 to more than 60% in 2018.
George Russell, a Worcester city councilor and longtime state-licensed real estate agent and instructor, has purchased properties over the years. He says he's seen how investing works from both sides.
Russell noted that it's currently a seller's market, and as an agent he sees multiple offers on a home. In the end, it often comes down to what a seller is willing to do.
"It's just easier to work with an investor in many cases," he said. "They can put large amounts of cash forward upfront, and they are willing to do a lot of the repairs. It simplifies things from their end."
A lot of first-time buyers intend to use a Federal Housing Administration loan to finance their home, Russell said, which further complicates matters. FHA loans come with certain minimum property standards that aren't always met.
"Even something as simple as ripped-up carpet can put financing in jeopardy," Russell said. "As a seller, you might not want to go through the process of making even small repairs, let alone things like updating the roof, fixing the electrical or doing a big paint job. In these cases, a seller might choose to go with an investor who doesn't need the financing, and will buy a home 'as is.'"
Russell notes that Worcester is a prime community for investors. Buyers can get much more property for their money compared to places closer to Boston, and the city's recent development only makes the area more attractive. In the city's Belmont Hill neighborhood, for example, it's common for smaller investors to buy up three-bedroom homes and either resell them, or keep them as rental properties.
The result, Russell noted, may be to the detriment of first-time home buyers, but can have positive outcomes as well.
"A lot of these investors have made a commitment to the area," he said. "These homes can be ideal for people working at the UMass Medical School or the UMass Memorial Medical Center. They go along with the development that has been happening all over the city."
Russell admits that while the frequency of investors may be on the rise due in part to soaring housing costs, investors have always played a role in shaping the market.
"Investors are nothing new," he said. "I've been in this business for 30 years, and people were swooping in and buying property back then, too. It's just talked about more."
The CoreLogic report from earlier this year backed this idea up. The report, which was subtitled "Don't Call it a Comeback: Housing Investors Have Been Here for Years," offers statistics on the percentage of homes purchased by investors in every zip code in the country.
In some communities, the percentage of investors purchasing homes in 2018 was equal to or less than the percentage in 1999, the study found. In Melrose, the percentage of investors at the start of the study was virtually identical to the percentage at the end. The number of investors purchasing homes in the "low-priced" and "high-priced" categories each went down by about 1%.
So why are investors in the news more than ever before? Some believe it's because of how the image of house flipping has changed.
DiMatteo said it might have something to do with television shows such as "Flip or Flop" on HGTV, or more locally, "Flipping Boston" on A&E.
"You watch shows like this, and it makes the process seem pretty glamorous," DiMatteo said. "It makes it seem like a quick and easy way to turn a profit. I think it's brought the issue into people's minds."
But DiMatteo said the process is far from the way it's made out to be on TV. She said investors must be well versed in virtually every aspect of the home-buying process, from the financial, to the legal, to the minutiae of construction and manufacturing.
"Part of the reason flippers can squeeze out regular Joes looking to buy a home is that they know how to navigate, or possibly even manipulate, the system," she said. "They have friends with connections. That's part of why they might get a bad name, and why people might be starting to 'out' them as being a big problem in the market. They're seen as having an unfair advantage, and it can be hard to compete with that."
Ultimately, DiMatteo doesn't see the issue going away anytime soon. In fact, it might be getting worse as technology plays a more active role in everyday life.
"Even Zillow is buying homes now," she said, referring to the property listing website's recent foray into purchasing homes directly from buyers. "One big change nowadays is the mindset that comes with having an app that can solve all your problems. People don't have to get off the couch to buy groceries or buy a car, so that's what they expect from selling their home."
Zillow touts its Zillow Offers system as a way for someone to sell their home by taking a few quick photos on their phone and answering a few questions. There's no need for an open house, and sellers can choose their closing date. Just upload the information, and Zillow does the rest.
"Flippers rely on making the process as easy as possible for sellers," DiMatteo said. "When you have a giant company like Zillow getting into the market, plus all the mom-and-pop investors out there, buying your first home is an uphill battle, for sure."
