Survey: Next 2 years is prime time for real estate investors

18.5% plan to pay in cash

By Inman News, Thursday, May 26, 2011.

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Flickr image courtesy of LuMaxArt.

Real estate investors are likely to be three times more active than other types of homebuyers in their local markets within the next two years, according to a nationwide survey from Realtor.com operator Move Inc.
Market research firm GfK Custom Research North America conducted the survey on behalf of Move from April 11-15, 2011. The survey included telephone interviews of 1,200 U.S. adults, of which about 200 were identified as real estate investors. Data was weighted by age, sex, education, race and geographic region.
A third of real estate investors are planning to buy in the next 24 months, compared to 8.6 percent of typical homebuyers -- those planning to purchase a primary residence, vacation home or retirement property. Another 9.1 percent of typical homebuyers, and 28 percent of investors, plan to purchase between two and five years from now.
Among the investors, half plan to hold their properties for five or more years while 11 percent expect to sell within a year of purchase, according to the survey.

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Some 56.5 percent of investors said the repair and maintenance of their property has not been difficult, and 42 percent plan to spend their own time and energy for that upkeep going forward.
Among the rest, 29.5 percent said they would hire a contractor for repairs and 28 percent said they would purchase move-in-ready properties. About 65.7 percent don't expect repair costs to surpass 20 percent of the property's purchase price, the survey said.
"This data suggests today's climate is hot for investing and is attracting a lot of new people that don't fit the stereotypical deal-driven flippers who buy and sell properties quickly," said Steve Berkowitz, Move CEO, in a statement.
"They're mostly entrepreneurial individuals who will make vital contributions to local communities by investing their own money and sweat equity to improve and maintain properties. These personal sacrifices made over the long run will help improve housing stocks, home values, property tax bases, and thousands of local communities."
More than half of investors, 53.5 percent, expect home prices to remain the same in the next six to 12 months. Of the rest, 23 percent expect prices to fall. About 69 percent expect it would be easier to find properties in the next six months, though 43.5 percent expect it would be harder to find bargains.
Some 41.5 percent of investors expect it would be easier to sell their properties in the next six months, the survey said.
Only 18.5 percent of investors said they will engage in an all-cash purchase, while 75.5 percent plan to combine cash and credit to purchase a property. More than half (59.5 percent) plan to put down cash but finance more than half of the purchase.
Sixteen percent plan to put down more than 50 percent in cash and finance the rest. Of the cash-only buyers, eight out of 10 expect discounts from sellers.
About 65.5 percent of investor respondents expect the financing difficulties first-time buyers are having will make it easier for them to compete for properties, according to the survey.
"The fact that most real estate investors plan on combing cash and credit for their purchases goes against the conventional wisdom that investor transactions today are mostly cash-only sales," Berkowitz said.
"This suggests they're seeing tremendous or once-in-a-lifetime opportunities and may be tapping into credit or taking out second trusts on existing properties. The data also shows they're expecting high returns to match the level of investment they're making in an arena that is new to many investors."
Most, 59 percent, of investors said they were new to investing; only 36.5 percent had experience with more than one property transaction. Nearly half (48 percent) said they expected a profit of 20 percent or more from their property investments, equal to a 4 percent annual rate of return over five years, the survey said. Another 40 percent expected a profit of 10 percent.