Profiting from Price Premiums: Investor Activity Reshapes the U.S. Housing Market

Investor purchases continue to reshape the U.S. housing market, with many routinely paying between 1.8% and 4.3% above market value, according to Cotality data. On a median-priced home of $405,000, this equates to an extra $7,300 to $17,415. These higher bids often come with cash offers, quick closings, and waived contingencies, enabling investors to outcompete traditional homebuyers.

As a result, starter homes are increasingly out of reach, and first-time buyers are often left renting. Investor activity has grown significantly — by early 2025, they accounted for about one-third of all home purchases in the U.S., more than doubling since mid-2020. Cotality experts project this level of investment to remain steady through the end of 2025.

Premiums by Investor Size

Cotality data shows that the amount investors pay above market value varies by portfolio size:

• Small investors (fewer than 10 properties): 1.8% above market value
• Medium investors (10–100 properties): 2.1% above market value
• Large investors (101–1,000 properties): 3.2% above market value
• Mega investors (more than 1,000 properties): 4.2% above market value

Principal Economist Thom Malone explained that paying above market value can be driven by several factors, including the desire to close quickly, speculation that a property is underpriced, or limited local knowledge leading to overvaluation.

Even when overpaying, some investors offset these costs through long-term appreciation or rental income. Large and mega investors can absorb higher purchase costs across extensive portfolios, while small landlords may balance overpayments with gradual rent increases.

Rental Prices and Cash Flow Challenges

With more buyers pushed out of the market, rental demand has surged. Rents rose 2.3% year over year, though growth has slowed below the 10-year pre-pandemic average. While rent increases can help offset purchase premiums, this slower pace means that rental income may no longer fully counterbalance inflated buying costs.

In lower-cost housing segments, the contrast is sharp — home sale prices are up 50% in the last five years, while rents have risen 30%. This has led to cash flow imbalances for most investor groups, except small-time investors, who tend to buy closer to market value and are recovering their costs more effectively.

Small investors, who make up about 14% of all investors, are purchasing the largest share of investment properties in the top 20 U.S. metropolitan areas. In Los Angeles, where investor presence is high, rents increased 3.1% between July 2024 and July 2025, and many investment homes have been absorbed into the city’s expanding rental market.

Impact on First-Time Buyers

Competition for lower-priced homes has intensified, particularly in the starter home segment. Investors now account for 37% of purchases in this price tier, using cash-only offers and appraisal waivers to secure properties. This trend continues to limit opportunities for first-time homebuyers, who face mounting affordability challenges.

A Changing Market Landscape

The housing market has experienced years of constrained inventory, high demand, and rising ownership costs. Investors now own twice the share of homes they did five years ago, according to Cotality. The average age of a first-time buyer has climbed from 33 to 38 years old since 2020.

Although investors frequently pay above market value, the strategy continues to yield returns for those able to absorb the premiums. With home prices at record highs and interest rates at generational peaks, would-be buyers remain largely in the rental market — while investors maintain a strong foothold in U.S. real estate.