Did you catch yesterday’s post on facts and fictions of investing in real estate? If you’re thinking of buying a home now, you’re going to have to compete with real estate investors. Good news: There’s plenty of room for you in the real estate investing market. Let’s look at some more myths that persist when it comes to real estate investing.
Myth 4: Investors are interested only in lower-priced properties. It’s true that the median price of homes purchased by investors is far below the median home price. The median investment-home price was $100,000 in 2011, up 6.4 percent from $94,000 in 2010, according to the NAR, while the median price for all homes in 2010 was $220,000.
Investors buy less-expensive homes for several reasons. First, the best bargains are foreclosures or short sales, which typically are discounted about 30 percent below the price of comparable homes for sale. Second, lower-priced homes cost less to buy and fix up, reducing the investment so that the investor can do a deal for less. Demand for entry-level homes has been greater than higher-bracket homes over the past five years; cheaper homes are easier and faster to sell. Finally, though the profit potential is greater on a more-expensive home than a less-expensive one, investors have found that they make more money with less risk by buying, rehabbing, and selling two inexpensive homes rather than one expensive home.
Myth 5: Real estate investors are investment funds or full-time professionals. One of the remarkable things about the residential real estate investment boom is that it is being fueled by amateurs, “accidental investors,” and one-time investors who get hooked when they understand how the system works.
Many homeowners who are forced to move in today’s market find it impossible or imprudent to sell their home. They instead decide to rent it to cover the cost of the monthly mortgage payments and upkeep and continue to do so until the market improves. Thus, they have joined the ranks of real estate investors.
In last year’s Move survey of investors, 59 percent were new to real estate investing, with 33.5 percent considering their first investment purchase and 8.5 percent in the process of buying and selling their first investment property. Another 17 percent said they had just completed their first transaction and planned to make more. Only 36.5 percent had experience in more than one property transaction.
The NAR study found that investment-home buyers in 2011 were neither professionals nor funds. They were individuals with a median age of 50, they earned $86,100, and they bought a home that was relatively close to their primary residence—a median distance of 25 miles, although 30 percent were more than 100 miles away.
What do these real estate investing facts and fictions mean to you? There’s a great opportunity to break into real estate investing. If you have the cash, the inventory and market are out there.
Steve Cook is Executive Vice President of Reecon Advisors and covers government and industry news for the Reecon Advisory Report.
Cook is a member of the National Press Club, the Public Relations Society of America and the National Association of Real Estate Editors, where he served as second vice president. Twice he has been named one of the 100 most influential people in real estate. He is a graduate of the University of Chicago, where he was editor of the student newspaper. In addition to serving as managing editor of the Report, Cook provides public relations consulting services to real estate and financial services companies, and trade associations, including some of the leading companies in online residential real estate.