Bernice Ross
America is facing a significant housing shortage, especially at entry-home level. And unnoticed by most, America’s mom-and-pop investors are quietly leading the charge in upgrading America’s current housing stock as well as bringing more habitable inventory to the market.
Kurt Carlton, president and co-founder of New Western, has labeled this emerging trend as “The Great Renovation.” Since 2008, New Western has built a database of over 200,000 investors that have bought and sold over $17 billion in properties.
Surprisingly, this market is much stronger than anyone realizes. Corelogic’s most recent data shows that investor purchases now account for 29 percent to 30 percent of all single-family residential sales nation-wide, and between 18 percent and 22 percent of sales in New Hampshire.
“Today we have millions and millions of homes that no aspiring homeowner is going to purchase because someone aged in place for a long time before dying, the roof damage was never attended to and there’s black mold and other major issues,” Carlton told me when I interviewed him earlier this year.
Who Are Today’s Mom-and-Pop Rehabbers?
We’ve all heard about how the “lock-in-effect,” where people do not want to trade their low-interest mortgage on their current home to purchase a replacement home that will have a much higher interest rate and payment, is keeping many homes off the market and helping push home prices ever-higher.
“In the meantime, there’s a substantial supply of distressed homes needing local real estate investors to rehab them, Carlton said. “These properties need to be identified, rehabilitated, and put back on the market.”
Carlton’s quarterly surveys of New Western’s users show that flippers generally fall into three categories: “corporate refugees” who have left their “9-to-5 rat race jobs” to follow what started as a side hustle, Gen Z investors passionate about real estate and Baby Boomers – often husband-and-wife teams – who are following a dream to improve their community.
“So, they’re finding this vacant inventory that’s in need of repair, changing what was an uninhabitable home to one that becomes habitable, and that ends up being a net plus-one housing unit. The result is a dramatic effect on supply,” Carlton said. “There are a lot of misunderstandings about what is required when there is a distressed property and that it is really going to require a real estate investor to do the work, not the homeowner.”
Legislative Efforts: Boon or Anti-Housing?
Even though these investors typically rehab houses with issues so severe that they’re not currently saleable to a typical buyer, many people mistakenly believe that rehabbers are reducing the pool of available properties rather actually adding to it.
This lack of understanding often extends to the legislative level as well. Carlton is currently working with lawmakers to help them understand the positive impact wholesaling can have on supply and affordability in their communities.
While several state legislatures have passed laws that support these efforts, Carlton bumped into a major issue with one set of local well-intentioned lawmakers in one state who didn’t understand how the process worked. Sadly, their anti-housing legislation has resulted in blocking a tremendous amount of new rehabbed inventory from coming on the market in that state.
“The way to become part of the middle class in America is to buy your own home, but these aspiring buyers cannot afford to pay $480,000 for new construction. They need something that is in the $180,000 to $200,000 price range, but that inventory is not available.” Carlton said.
Unfortunately, when local lawmakers fail to understand how this works and the contribution that investors make to their communities, they shut down the process.
The result is fewer affordable entry-level houses, houses that could have been listed by a Realtor and that have been brought up-to-date by today’s market standards by a rehabber. This in turn reduces the amount of inventory available which in turn drives up prices.
Carlton noted that during the Great Recession in 2008 when New Western was founded, it was the financial products that caused a property to become distressed. Many of the homes that were foreclosed upon were about five or less years old.
Carlton said he is passionate about tackling this issue at the national level.
“Regulation is definitely needed, but it must be well thought-out. Local, state and federal lawmakers as well as state real estate commissions, must carefully craft regulations to avoid stemming the flow of available affordable inventory,” Carlton said.
The Great Renovation is already in process. If this trend continues to grow, it certainly has the potential to solve our inventory problems by breathing new life into America’s aging and vacant homes.
Bernice Ross is a nationally syndicated columnist, author, trainer and speaker on real estate topics. She can be reached at bernice@realestatecoach.com.
