Low prices, increased rental rates, and low mortgage rates have created a very favorable climate for real estate investors. Since the real estate crash in 2007, average rent rates have increased 12.1% from $1,757 to $1,999 for a three bedroom property in San Diego County.[1] Investors are now paying less for property while earning higher rental incomes thus providing greater potential for cash flow.
The National Association of Realtors (NAR) projects 5.27 million existing homes will be sold in 2011, a 7.4% increase from 2010. The median existing home sales price in 2010 of $172,900 is projected to drop by 1% in 2011 and increase by 3.1% in 2012 to $176,500.According to NAR’s 2011 Investment and Vacation Home Buyers Survey, vacation-home sales accounted for 10% of transactions last year while the portion of investment sales was 17%, totaling 27% of new and existing home sales – both unchanged from 2009. Nearly all (94%) of vacation home buyers say they do plan to rent their property within the next 12 months to either long-term or short-term renters or a combination of the two, and 60 percent of buyers believe they’ll make enough rental income to cover at least half of their mortgage. Vacation homes account for 1 in 10 real estate purchases. Nearly half (47%) of real estate investors and 31% of vacation home owners said they are likely to purchase another property in next 2 Years.[2] Buyers purchasing property as their primary residence typically purchase once every seven years.
The real estate investment market is currently made up of 1.41 million transactions and almost a quarter trillion in sales per year.
The growth of the real estate investment market has been astounding in recent years by reaching as high as $634 Billion. At the peak of the real estate boom, more than one in four transactions was an investment transaction. Most properties were purchased based on hyperbole without any real analysis. As the real estate market rebounds education, coaching, research and investment analysis are instrumental decision making tools for sound investing.
Unemployment and an overall weak economy have weighed on the real estate market and consumer confidence. However, home sales have recently risen due to low rates, greater affordability, and the first time homebuyer tax credit.
Traditionally the influences surrounding the purchase of a primary residence are relocation, formation of new households (marriage, birth), or changes in family circumstances (college, divorce, job loss, upsize, downsize).
The most important factors influencing the purchase of investment property are location, price, and local demand for rental units. Even in difficult economic times, opportunities exist – 83% of investors believe it is a good time to purchase real estate. The reason why investors purchase real estate is for cash flow, investment diversity and tax benefits. Most investors purchase existing (84%) single family residences (63%) in a suburb or subdivision (35%) within 5 miles (18%) of their primary residence using all cash (59%).[2]
The growth of the market is a regional (35% in South, 25% in West) and interest rate question. Interest rate volatility and other factors can cause higher volumes of purchasing.
Lawrence Yun, NAR’s chief economist, said, “Despite extraordinarily tight credit conditions for purchasing a second home, the market share for vacation and investment homes held steady,” he said. “A sizeable number of buyers made deals with all-cash offerings.” Yun went on to say “The fall in home prices has opened opportunities for more families to enter the second-home market – the median income of investment buyers today is lower than it’s been in recent years,” Yun said. “Even if purchases are delayed due to economic circumstances, the underlying long-term demand – the desire for purchasing second homes – remains because people in their 30s and 40s will reach the prime age for buying and will drive the second-home market in coming decades as conditions permit,” Yun added.
- Most investors (50%) are under 45 years old (33 for primary residence)
- Median income for investors was $86,700 in 2010
- Almost half (43%) of investors made less than $75,000 per year in 2009
- Buyers in their 30’s and 40’s will reach the prime age for buying in coming years.
- 43.8 million people are now in the primary buying demographic of 40-49yrs old
- 40.4 million people are 30-39yrs old and will reach prime age for buying in coming years (more and more are investing now due to current conditions)
- Current data shows 7.9 million vacation homes & 41.6 million investment units! How many will you have?
- 12 years is the median length investors desire to hold their properties
What do most investors need help with?
- An alarming 28% of real estate investors don’t have an exit strategy
- Only 49% of investors used a real estate agent/broker to purchase property in 2009 – Do you have a CIAS?
- Only 17% of investors purchased properties at foreclosure or trustee sales in 2010 – Mostly due to the unfamiliarity
- Only 8% of investors purchased properties from for sale by owner (FSBO) in 2009 – Have access to the non MLS data?
- Most (27%) of investors looked for property online in 2009
- Only 11% of investors looked online for info about the home buying process in 2009
- Most (28%) of investors found the home they purchased on the internet in 2009
- 83% believe it is a good time to buy real estate – Do you know how to find that next deal?
The real estate business is highly competitive and price sensitive. Investment tools need to empower clients to design their ideal lifestyle by helping them invest wisely, save money, increase assets, manage/track portfolio, leverage and use real estate as a retirement tool.
The most important indicators in real estate investing are cap rate and cash flow – appreciation is a bonus.
Whether the investment is in a home for future generations, or a home purchased to rent as a source of income, look for a company that will be your long-term partner in helping you achieve goals. Good Realtors do this by educating, advising and providing asset ratings to customers.
Good real estate investment companies attract repeat investors by providing easy-to-understand research and analysis. Relevant content helps clients gain knowledge on real estate investing, stay current on market information and make educated investment decisions. When informing a client on something they did not know on their own or something that a competitor did not, a real estate agent can builds confidence and brand loyalty as a one stop shop for real estate investing.
Educate yourself on the above real estate investing trends and work with the right team to help you capitalize on them!
[1] U.S. Department of Housing and Urban Development, Fair Market Rents, http://www.huduser.org/portal/datasets/fmr.html
[2] 2010 NAR Investment and Vacation Home Buyers Survey