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. (Click
- Read more:
Real Estate's New Rules
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.
Why They Bought | |||||||||||||||||
|
|
2. They Like Single-Family Homes
The greatest share by far of investment-home buyers typically bought a detached single-family home.
What They Buy | |
Detached single-family | 61% |
Townhouse or row house | 12% |
Condo/duplex in 2-4 unit bldg | 9% |
Condo/apartment in 5+ unit bldg | 13% |
Other | 5% |
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.
Location of Property | |
Small town | 16% |
Rural area | 21% |
Suburb/Subdivision | 32% |
Urban area/Central city | 26% |
Resort area | 5% |
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.
Median Distance From Home (in Miles) | |
Investment property buyers | 24 |
Vacation home buyers | 200 |
| |
5. They Vary by Region
The largest chunk of investment buyers last year purchased a property in the U.S. South.
Where's the Investment Property? |
|
Northeast | 17% |
Midwest | 20% |
South | 37% |
West | 26% |
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.
Median Household Income | |
2010 | $87,600 |
2011 | $86,100 |
2012 | $85,700 |
2013 | $111,400 |
2014 | $87,680 |
7. They Paid Less Last Year
After climbing for four years, the median sale price of U.S. investment property purchases slipped in 2014.
Median Sale Price | |
2010 | $94,000 |
2011 | $100,000 |
2012 | $115,000 |
2013 | $130,000 |
2014 | $125,000 |
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.
Will They Buy Again? | |
Very likely | 24% |
Somewhat likely | 44% |
Somewhat unlikely | 12% |
Very unlikely | 12% |
Don't know | 8% |
