A couple months ago when President Obama announced his housing recovery plans, he talked in terms of "responsible" home owners who need help to stay in their primary residence. He did not want to help "speculators who took risky bets on a rising market and bought homes not to live in but to sell."
His intent was admirable, as homeownership is a valued cornerstone of the American way. To imply that all other property owners were "speculators" and to make that a dirty word was unduly harsh. In a country where most people start out renting and where some people happily rent all their lives, investment in rental property is an honorable tradition - and a necessity. Since few people buy investment property as a charitable enterprise, buying a property at a low price, rehabbing it, and hopefully reselling it or renting it for profit make sound business sense. Investors are necessary to make homes available for all who need them.
To be fair, there are areas of the country, like Las Vegas and the whole state of Florida, where investors rushed in and bought up property at bargain prices in hopes of selling them at a profit to retirees and working families. In Cape Coral, some even acquired their house-flipping strategies from "Millionaire University," which led to a doubling in housing prices in Cape Coral between 2000 and 2005. Most of these properties were shadily financed, so these investors not only played a major role in housing inflation but in skyrocketing foreclosure rates as well. By 2007, there were 1,900 foreclosures. By January, 2009, there were 24,000.
The group of investors involved in melees like this do not comprise the bulk of investors. Data from 2008 indicates that investors made up only 13% of foreclosures nationwide. In fact, according to a study on second homes and investment purchases done by the National Association of Realtors (NAR), the investor segment was one of the strongest in the real estate market in 2008. How does the NAR profile this "strong" market segment?
- Investors comprised 21% of the market, down from 28% in 2007
- 42% paid cash for their units vs. 15% of buyers of primary residences and 31% of vacation home buyers
- They paid a median purchase price of $108,000 vs. $196,000 for buyers of primary residences and $150,000 for vacation home buyers. This is down from $189,000 back in 2004, when vacation home buyers when purchasing $204,000 homes
- 54% of investment purchases were within 20 miles of the investor's residence, while 67% ere within 50 miles
- 67% were detached single family homes, 22% were condos or duplexes, 8% were condo or rowhouses
- 1 of 6 purchases was an REO or other distressed situation purchase
- They tend to be about 10 years older than the average primary residence buyer (47 vs. 37)
- Their average income ($85,000) was not higher than other buyers, though second and vacation home buyers averaged $97,000
At the moment, despite some encouraging housing news, foreclosures are still rising. The homes that will come on the market from these foreclosures will further swell the stock of bank-owned homes throughout the country. Some of these homes offer great opportunities for first time homebuyers and others willing to accept a challenging property often in need of repair in exchange for a great deal. Buying this type of home is not for everyone. In reality, many REO homes are being bought by investors - individuals and groups of varying sizes - who are willing to take a risk, rehab, and rent out the property. This is also the American way.
Will investors, even good cash-paying stable ones, stabilize housing where buyers in search of affordable housing may not always be able to? Skeptics say the many investors will just sell the homes when the market turns around, which will once again add to the pool of homes in the market. The likely reality is that many renters, perhaps temporarily displaced from homeownership by foreclosure, will be ready to buy again. In the meantime, investors are improving the housing stock and making rental homes available to families.
Pearland investors: Great deals await you in the local market place. Kathy Kipp knows the area and will show you the best in foreclosures and REO properties. I can even help you lease and manage your Houston-area rentals.
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