By Danny Thompson, Director of Keller Williams Realty Publishing
Recently, I was reading through The National Association of REALTORS 2011 Investment and Vacation Home Buyers Survey and I got to thinking: With the opportunities that this market is affording us, how much of the buying population is going to be investors? Let’s start with some interesting stats: Total home sales for 2010 was 5.2 Million new and existing homes, keeping close pace with 2009 sales. The beginning of the year saw a large amount of first-time home buyers in the median and below median price range, followed by a slight lull of sales after the tax credit opportunity ended, ending the year fairly strong with continued low mortgage interest rates.
None of this is really news.
What IS interesting is that investor purchases were 17% of that amount, roughly 884,000 home sales, with an average sales price of $94,000, down from $105,000 in the previous year. This is actually a smaller percentage than in years past … in 2005, investors were buying about 25% of all residential properties sold. The decline has much to do with the tightening of the mortgage requirements, and of course was influenced by the decreasing home values.
Historically, the investor has been a relatively ignored piece of the market. Some agents have considered them too much work, because they perceive that investors only want “steals”; and want commissions to be discounted; and many other unreasonable demands. Other agents have stated that investors are very “numbers”, or “models” oriented, and require a great deal more time in analyzing properties, as opposed to more emotional purchase of a typical buyer. To the first issue, NAR reports that over 50% of the investors were simply seeking to diversify their investments and saw a great opportunity in the real estate market. In other words, 50% of investors didn’t really consider themselves investors per se, just individuals seeking safe harbor for a portion of their wealth. That means approximately half of those who purchased investment properties are unskilled investors who would benefit a great deal from professional representation; and the other half are those who may buy multiple properties, have business models and speak of “ROI, and Cap Rates, etc…” Either way, they all deserve quality representation from an educated, well-informed agent. With 52% of the investors in this survey indicating they were likely to very likely to buy another property in two years or less, the opportunity is clear.
This underserviced investor market is responsible for at least $83 billion in volume last year according to NAR, with most forecasters estimating that will increase this year. Their reasoning is that since the first-time home buyers won’t be out in full force, as they were in 2010, more investment homes will be available, coupled with the fact that many consider the down turn in home prices to be over, or at least close to the bottom. With average rents going up everywhere due to the influx of renters who can no longer purchase, cash flow is almost guaranteed in every city, every property, everywhere. In essence, it’s investors heaven! The question is, what are agents going to do about this opportunity? Here are a few ideas:
1. Get Educated! Read the Millionaire Real Estate Investor by Gary Keller, to better understand the investor mind.
3. Get connected! Join your local Real Estate Investor Association (REIA) and get into community with Investors and Investor servicing networks.
Even if investor activity holds the line at 17% of the more than 5 million residential sales expected this year, there are still more than 850,000 transactions out there, just waiting for representation! Get your unfair share of the potential $2.5 billion in commissions available in the real estate investor niche market – this could be the Market of the Moment!