Clients Want Real Estate? 8 Things Advisors Should Know
May 6, 2015 4:32 PM
Clients Want Real Estate? 8 Things Advisors Should Know
The U.S. real estate market has largely recovered -- but for advisors whose clients want to invest some of their assets in property, that rebound creates both opportunities and challenges.
As noted in Financial Planning's cover story on real estate's new rules, more expensive properties eat up more cash and can mean servicing a bigger loan. They occupy a bigger proportion of a less-diversified portfolio; and if prices increase faster than rents, the properties will return less cash, making the owner -- that is, your client -- more vulnerable to the financial hits of vacancy, maintenance costs and careless or destructive tenants.
Want to understand these clients a little better? A recent survey from the National Association of Realtors took a deep look at investment real estate buyers and identified several characteristics that set them apart. Page through to see the details, or see this as a one-page version here. -- Rachel F. Elson
As noted in Financial Planning's cover story on real estate's new rules, more expensive properties eat up more cash and can mean servicing a bigger loan. They occupy a bigger proportion of a less-diversified portfolio; and if prices increase faster than rents, the properties will return less cash, making the owner -- that is, your client -- more vulnerable to the financial hits of vacancy, maintenance costs and careless or destructive tenants.
Want to understand these clients a little better? A recent survey from the National Association of Realtors took a deep look at investment real estate buyers and identified several characteristics that set them apart. Page through to see the details, or see this as a one-page version here. -- Rachel F. Elson
1. They're Looking for Income
The largest share by far of investment buyers purchased property for rental income; a distant second was because of low prices and the buyer found a good deal. Overall, investment buyers plan to hold on to the property for a median of five years.
2. They Like Single-Family Homes
The greatest share by far of investment-home buyers typically bought a detached single-family home.
3. They Prefer the Suburbs
Investors were most likely to buy in a suburban area, followed by an urban or central city, rural area and small town. Only a handful bought in a resort area.
4. They Stay Close to Home
Where do investment-home buyers go shopping? The short answer: Not far. Investment-home buyers bought properties that were a median distance of 24 miles from their primary residence.
5. They Vary by Region
The largest chunk of investment buyers last year purchased a property in the U.S. South.
6. They're Not Ultrahigh Earners
Other than a spike in 2013, the median household income of investment-home buyers over the last few years has remained fairly constant and fairly modest, in the range of $85,000 to $90,000 a year. The 2013 spike was "likely the result of the elevated activity seen that year in cash buyers scooping up the remaining glut of distressed homes available," explains Adam DeSanctis, a spokesman on economic issues for the NAR.
7. They Paid Less Last Year
After climbing for four years, the median sale price of U.S. investment property purchases slipped in 2014.
8. They're Repeat Shoppers
A majority of investment property buyers say they are very or somewhat likely to buy another investment property in the next two years.
