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According to a recent report, data shows that purchases by institutional investors are trending upward, after steady declines over the past few years. An institutional investor is defined as an investor who purchases 10 or more single family rental properties in a calendar year, someone that is actively engaged in the business of real estate investing. This is in contrast to your “mom & pop” investors, who typically engage in real estate activities as a side business or wealth building or retirement strategy.
During the real estate meltdown of 2008 & 2009, many “vulture funds” made up of institutional investors began to quickly form to take advantage of the opportunity created by the housing glut, which brought down prices dramatically while rental rates continued to rise. Even Warren Buffett, one of the most respected investors in the country, said if he had the people to manage them that he would buy 10,000+ single family homes immediately.
This rush to buy real estate by institutional investors hit its peak around 2011, and then began a slow and steady decline over the next few years as real estate prices went up across the country, lowering rates of return on investments in single family homes across the country. However, for the first time in 5 years, 2015 once again saw an increase in purchases by institutional investors, as a flat stock market has sent the “smart money” elsewhere to find adequate returns.
If you were fortunate enough to purchase a rental property at a discount in the 2010-2013 time frame, you may want to consider selling that property today. Due to high demand, you can likely get close to retail value, and then convert that single property with marginal cash flow into multiple properties with great cash flow, by purchasing from one of the many wholesalers in your area at 70% of value (or less).
And if you are in the wholesale business, you should be analyzing the local market data for multiple cash purchases in a given year by a single investor, and adding them to your buyers list. They are used to buying property close to retail, and so you could multiply your standard assignment fee by 2 or 3 times (thousands of dollars) compared to what a rehabber might give you for the same property.
Thoughts? Opinions? Let us know in the comment section below. For the full story, and even more recent real estate news, check out the video below!Read More
While many investors are enticed by the larger potential profits of high-end real estate, statistics continue to show that your best bet is to stay in the entry-level price points sought after by first time homebuyers. More experienced investors might find success from time to time in the luxury space, but when analyzed on a percentage basis, high end homes rarely return the profit margins found in “work-force” housing or entry-level properties that fall at or below the median home price in your area. Recent news regarding inventories on entry level homes brings this point into much better focus.
Recent data reveals that there are currently 10.4% fewer entry level homes on the market today than there were at this time one year ago, and those inventory constraints are driving prices up even higher on homes in these price ranges. While recent price appreciation has been in a healthy 5-6% per annum range, the MAJORITY of that appreciation has come in the 1st time home buyer range. Homes in the “move-up” and luxury price ranges have been rising at a 2-3% clip in most areas, while their entry level counterparts have been jumping at rates near 10% per year.
New investors will find that their is significantly less competition in the luxury market, but it can also be fraught with risk for even the most experienced flippers. If a real estate rehabber doesn’t have at least 10 deals under his or her belt, it’s advisable that they continue to stay in the 1st time home buyer range to continue to build confidence and much needed capital before taking on more expensive projects. The “get rich slowly” method might not be as exciting, or land investors a show on HGTV or DIY network, but those who read the book, “The Tortoise & the Hare” will find that the same character wins every time.Read More
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As an entire generation of home buyers begin to hit their retirement years and start looking to downsize, it’s important for real estate investors and home flippers to stay up to date with what this massive block of home purchasers is looking for in a home. The National Association of Home Builders recently did a survey to find out what attributes and amenities were important to this demographic, and this is what they found out:
63% of baby boomers desire single story, single family homes. They don’t want to be in a multi-family community with neighbors on either side of them, and they definitely don’t want anything with stairs due to the increased potential for falling, or the possibility they may be in a wheelchair in their latter years.
63% of baby boomers want a formal living room. Sometimes in the frenzy to “modernize” a house, or make it more contemporary, rehabbers look to “open up” spaces to resemble newer construction. However, if you’re in an area or a neighborhood with a lot of elderly buyers, you would never want to sacrifice a formal living room in order to open up a space, as it will eliminate a large part of your buyer pool.
93% of all baby boomers want to be in the suburbs or a rural area, away from the hustle and bustle of the city center. And lastly, only 13% of baby boomers are willing to pay extra for “green” or environmental features, so don’t waste your money on them if you’re targeting retirees in your market.
Do you have any experience rehabbing and selling to baby boomers? Do your experiences match up to the above survey? Let us know your thoughts in the comment section below!Read More
A normalizing of the housing market in the last few years has meant a huge decline in distressed inventory available for sale—which has contributed to the low levels of existing homes for sale in recent months. Despite the lack of inventory, investors are becoming more involved in the market, according to data released by the National Association of Realtors (NAR) on Monday
The short supply of existing homes combined with price appreciation and slow wage growth has resulted in an over-the-month decline of 7.1 percent for the seasonally adjusted annual rate of existing-home sales in February, from 5.47 million down to 5.08 million, according to NAR’s February 2016 Existing-Home Sales Report. Over the year in February, existing-home sales were up by only 2.2 percent.
“The overall demand for buying is still solid entering the busy spring season, but home prices and rents outpacing wages and anxiety about the health of the economy are holding back a segment of would-be buyers,” NAR Chief Economist Lawrence Yun said.
Investor activity in the existing-home sales market has been on the rise as of late. The share of investor-purchased homes rose from 17 percent in January to 18 percent in February, which was the highest investor share since April 2014. Approximately 64 of those investors paid cash for the homes they purchased in February.
“Now that there are fewer distressed homes available, it appears there’s been a shift towards investors purchasing lower-priced homes and turning them into rentals.”
As a further indicator that investor activity is increasing, the distressed sales share rose by 1 percentage point over-the-month in February up to 10 percent (7 percent foreclosures, 3 percent short sales), Investors were also able to purchase distressed inventory at much lower prices in February—the average discount for foreclosed homes during the month was 17 percent below market value, up 4 percentage points from January; for short sales, the average discount was 16 percent below market value, also up 4 percentage points over-the-month.
The increased investor activity may be preventing potential first-time buyers from entering the market, however. NAR reported that February’s first-time buyer share (30 percent) is down 2 percentage points over-the-month and is at its lowest level since November 2015. The 30 percent for February matched the first-time buyer share for all of 2015.
“Investor sales have trended surprisingly higher in recent months after falling to as low as 12 percent of sales in August 2015,” Yun said. “Now that there are fewer distressed homes available, it appears there’s been a shift towards investors purchasing lower-priced homes and turning them into rentals. Already facing affordability issues, this competition at the entry-level market only adds to the roadblocks slowing first-time buyers.”
The homes that ARE on the market aren’t staying there long. The number of days an existing home stays on the market in February was 59 days, which was down from 64 days in January and 62 days in February 2015. About 35 percent of the homes sold in February were on the market for less than a month. Short sales were on the market for an average of 126 days; for foreclosures and non-distressed homes, the average number of days on the market was 57.
“With low supply this spring buying season, it’s easy for buyers to get discouraged when their offer is rejected in favor of a higher bid,” said NAR President Tom Salomone, broker-owner of Real Estate II Inc. in Coral Springs, Florida. “That’s why it’s important for buyers to stay patient and work with a realtor to develop a negotiation strategy that ensures success without overstretching their budget.”
Article printed from DSNews: Posted By Brian Honea
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