On the House: A boom time for investing in real estate?
Real estate investors will outnumber home buyers by a 3-1 margin in the next two years. At least that is what Move Inc., a real estate search engine, found in a national online survey of adults 18 and older.
Real estate investors will outnumber home buyers by a 3-1 margin in the next two years.
At least that is what Move Inc., a real estate search engine, found in a national online survey of adults 18 and older.
As usual, I asked the locals if they had seen any investors lurking near their listings.
"Most of my investors are looking for real estate to improve and sell as high-end new construction or high-end gut renovation," said Center City agent Jeff Block, of Prudential Fox & Roach. "It can be a vacant lot, shell, or a home in 'original' condition."
Block said he had several investors looking for one property to develop. Another investor was in search of what Block called a "larger-scale project" in Center City.
"I also have a few buyers looking for the traditional income-producing property," he said.
Realtor/condo developer Allan Domb also deals with a lot of investors in today's market.
"Most want studios or one bedrooms within one to two blocks of Rittenhouse Square," Domb said. "These are easily rentable, and no one will ever duplicate them."
The Move Inc. survey results suggest that investors are able to compete "vigorously" with traditional first-time buyers.
Two-thirds of the respondents said they expected that the problems first-time buyers were having in getting mortgages would make it easier for them to compete.
One in five investors said they would be cash-only buyers, a strategy out of reach for most first-time buyers.
Eight of 10 expected cash discounts from sellers.
These investors aren't just blowing smoke, recent statistics indicate.
Since the federal income-tax credit for qualified buyers ended more than a year ago, cash-only purchases have made up about 30 percent of the national residential market. And in March, investors were 22 percent of all buyers of previously owned homes.
It makes sense. Aggressive pricing on distressed properties is undercutting sellers and builders, and "wreaking havoc on local housing markets," according to Hanley Wood Market Intelligence.
First-quarter data from Housing IntelligencePro show that new-home activity and regular resale volume made up a smaller portion of total closing activity compared with the first three months of last year and every quarter since then.
Banks are selling three times more houses than builders, Hanley Wood says.
Contrary to the tactics used by so-called "flippers," 50 percent of today's real estate investors plan to hold their properties for five-plus years, the survey found. Only 11 percent expected to sell within 12 months of purchase. Two-thirds said they were investing for the long term.
Fifty-nine percent told Move they were new to real estate investing, with 33.5 percent considering their first investment purchase and 8.5 percent in the process of buying or selling their first investment property.
An additional 17 percent said they had just completed their first transaction and planned to make more. Only 36.5 percent had experience in multiple transactions.
The survey results suggest that, in the current market, real estate investment is attracting new people who don't fit the stereotype of "deal-driven flippers that buy and sell properties quickly," said Move Inc. chief executive officer Steve Berkowitz.
Investors clearly expect high-yield returns, however.
Nearly half said they expected a profit of 20 percent or more from their properties, a 4 percent annual rate of return over five years.
An additional 40 percent of respondents said they expected a profit of 10 percent. Only 6.5 percent were expecting a return of 5 percent or less.
On the House:
Inquirer real estate writer Alan J. Heavens is the author of "Remodeling on the Money" (Kaplan Publishing). His home improvement column appears Fridays in Home & Design.