Where do people buy investment properties?

Photo credit: ppa / Shutterstock

In the heated housing market over the past two years, one of the factors contributing to the fierce competition and rising prices has been real estate investors. Although many prospective homebuyers were drawn to the market with historically low interest rates and strong savings and investment returns, they often found themselves outbid by corporate landlords and investment brokers. These businesses have the wherewithal to pay cash for homes and a greater ability to take on the risk of buying properties than individual buyers.

Institutional investors bought a record 18.4% of all U.S. home sales in the final quarter of 2021, up from 12.6% in the final quarter of 2020. While real estate investment has reached new heights over the past year, the number of homes, purchased by investors has grown steadily since the collapse of the housing bubble and Great Recession in the mid-2000s. Between rising home values ​​and stable rental income, residential real estate has proven to be an attractive asset class for large investors.

These attributes can also make real estate a desirable investment for individual investors and small landlords, especially those who have the cash to make a purchase. But for investors who need a mortgage loan to buy a rental property, financing can be harder to find.

Qualifying for a mortgage on an investment property is more difficult than for a primary residence, which is one of the reasons why the majority of buy-to-let is done with cash. Although the typical value of an investment property is lower than for a primary residence, lenders typically require larger down payments and lower debt-to-income ratios and charge higher loan interest rates. In 2020, an investment property mortgage had an average down payment of $60,000 and an average interest rate of 4.0%, compared to $50,000 and 3.1% for a home – although homes had a higher average value of the property.

For investors relying on financing to purchase property, most of the best locations for investment properties are located in the South. Arkansas (19.4%), Oklahoma (18.5%) and several surrounding states have a high share of investment property loans as a percentage of all purchase loans. These states have some of the lowest costs of buying real estate in the country, making them more accessible to prospective real estate investors.

At the metro level, cities in these states are also among the most popular locations for mortgage investment properties. But the list also includes some more expensive cities where property values ​​are rising quickly, such as Los Angeles, Austin and Nashville.

The data used in this analysis are from the Board of Examiners of Federal Financial Institutions Residential Mortgage Disclosure Act. Only conventional home purchase loans approved in 2020 were examined. To determine where people are buying investment properties, Stessa researchers calculated investment property loans as a percentage of all purchase loans. In the event of a tie, the location with larger total investment property loans was ranked higher.

Here’s the US metro area where people mortgage investment properties.

Large metro stations where people mortgage investment properties

Photo: Sean Pavone/Shutterstock

15. San Antonio-New Braunfels, Texas

  • Investment property loans as a percentage of all purchase loans: 8.7%
  • General loans for investment properties: 1,987
  • Average property value for investment properties: $205,000
  • Average down payment for investment properties: 50,000 dollars
  • Average interest rate for investment properties: 3.9%

Photo credit: f11photo / Shutterstock

14. Las Vegas-Henderson-Paradise, Nevada

  • Investment property loans as a percentage of all purchase loans: 8.8%
  • General loans for investment properties: 2,361
  • Average property value for investment properties: $285,000
  • Average down payment for investment properties: 80,000 dollars
  • Average interest rate for investment properties: 4.0%

Photo: Gang Liu/Shutterstock

13. Philadelphia-Camden-Wilmington, PA-NJ-DE-MD

  • Investment property loans as a percentage of all purchase loans: 8.9%
  • General loans for investment properties: 5,214
  • Average property value for investment properties: $225,000
  • Average down payment for investment properties: 60,000 dollars
  • Average interest rate for investment properties: 4.2%

Photo credit: Lucky-photographer / Shutterstock

12. San Diego-Chula Vista-Carlsbad, California

  • Investment property loans as a percentage of all purchase loans: 9.0%
  • General loans for investment properties: 2,493
  • Average property value for investment properties: $635,000
  • Average down payment for investment properties: 200,000 dollars
  • Average interest rate for investment properties: 3.6%

Photo: jdross75 / Shutterstock

11. Nashville-Davidson-Murfreesboro-Franklin, TN

  • Investment property loans as a percentage of all purchase loans: 9.0%
  • General loans for investment properties: 2,932
  • Average property value for investment properties: $265,000
  • Average down payment for investment properties: 70,000 dollars
  • Average interest rate for investment properties: 4.0%

Photo: Sean Pavone/Shutterstock

10. Birmingham-Hoover, Alabama

  • Investment property loans as a percentage of all purchase loans: 9.4%
  • General loans for investment properties: 1,274
  • Average property value for investment properties: $125,000
  • Average down payment for investment properties: 30,000 dollars
  • Average interest rate for investment properties: 4.1%

Photo: John S. Quinn / Shutterstock

9. Virginia Beach-Norfolk-Newport News, VA-NC

  • Investment property loans as a percentage of all purchase loans: 10.2%
  • General loans for investment properties: 1,704
  • Average property value for investment properties: $195,000
  • Average down payment for investment properties: 50,000 dollars
  • Average interest rate for investment properties: 4.3%

Photo: Tupungato/Shutterstock

8. Kansas City, MO-KS

  • Investment property loans as a percentage of all purchase loans: 10.6%
  • General loans for investment properties: 3,205
  • Average property value for investment properties: $155,000
  • Average down payment for investment properties: 40,000 dollars
  • Average interest rate for investment properties: 4.1%

Photo: Roschetzky Photography / Shutterstock

7. Austin-Round Rock-Georgetown, Texas

  • Investment property loans as a percentage of all purchase loans: 10.9%
  • General loans for investment properties: 4,435
  • Average property value for investment properties: $285,000
  • Average down payment for investment properties: 70,000 dollars
  • Average interest rate for investment properties: 3.5%

Photo: Sean Pavone/Shutterstock

6. Los Angeles-Long Beach-Anaheim, California

  • Investment property loans as a percentage of all purchase loans: 10.9%
  • General loans for investment properties: 8,806
  • Average property value for investment properties: $875,000
  • Average down payment for investment properties: $310,000
  • Average interest rate for investment properties: 3.7%

Photo: KENNY TONG / Shutterstock

5. St. Louis, MO-IL

  • Investment property loans as a percentage of all purchase loans: 11.8%
  • General loans for investment properties: 4,152
  • Average property value for investment properties: $145,000
  • Average down payment for investment properties: 40,000 dollars
  • Average interest rate for investment properties: 4.1%

Photo: Sean Pavone/Shutterstock

4. New Orleans-Metairie, Louisiana

  • Investment property loans as a percentage of all purchase loans: 12.4%
  • General loans for investment properties: 1,308
  • Average property value for investment properties: $240,000
  • Average down payment for investment properties: 60,000 dollars
  • Average interest rate for investment properties: 4.5%

Photo: Sean Pavone/Shutterstock

3. Tulsa, OK

  • Investment property loans as a percentage of all purchase loans: 13.2%
  • General loans for investment properties: 1390
  • Average property value for investment properties: $145,000
  • Average down payment for investment properties: 30,000 dollars
  • Average interest rate for investment properties: 4.4%

Photo: Sean Pavone/Shutterstock

2. Memphis, TN-MS-AR

  • Investment property loans as a percentage of all purchase loans: 20.6%
  • General loans for investment properties: 2,560
  • Average property value for investment properties: $115,000
  • Average down payment for investment properties: 30,000 dollars
  • Average interest rate for investment properties: 4.1%

Photo: Sean Pavone/Shutterstock

1. Oklahoma City, OK

  • Investment property loans as a percentage of all purchase loans: 20.9%
  • General loans for investment properties: 3,549
  • Average property value for investment properties: $155,000
  • Average down payment for investment properties: 40,000 dollars
  • Average interest rate for investment properties: 4.3%

Detailed findings and methodology

The data used in this analysis are from the Board of Examiners of Federal Financial Institutions Residential Mortgage Disclosure Act. Only conventional home purchase loans approved in 2020 were examined. To determine where people are buying investment properties, the researchers calculated investment property loans as a percentage of all purchase loans. In the event of a tie, the location with larger total investment property loans was ranked higher. To improve relevance, only metropolitan areas with at least 100,000 residents were included. In addition, metropolitan areas were grouped into cohorts based on population size: small (100,000–349,999), medium (350,000–999,999), and large (1,000,000 or more).

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