First Time Investors. 59%?

My posts have been a bit scare lately.  May was a very busy month and it seems like June is going to be even more busy.

The market continues to be a bit on the crazy side.  Retail resale values seem to be trending down with less than average activity, on the opposite side investors seem to be paying more and more for product.  That seems like a scary convergence.

We have been pretty conservative and buying mostly “project houses” that need a lot of work or have a funky situation going on.

I read an article in Wall Street Journal earlier this week.  They studied a pretty small sample pool of investors, but it has some interesting results:

  • Farewell, flippers. Half of the investors surveyed say they plan to hang onto their properties for five or more years.
  • Hello, newbies. A whopping 59% are new to real estate investing.
  • Cash is king but… more than three-quarters plan to combine cash and credit to build their real estate empires.
  • What happens when they all want to sell? Great expectations reign. Nearly half expect a profit of 20% or more.

So if 59% of the buyers are first time investors (“new” whatever that means) and 50% are planning to rent out the house that leaves a lot of new landlords out there.  I wonder how many of them will do okay?

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4 Responses to “ First Time Investors. 59%? ”

  1. Matt Kearney says:

    Steve,

    I am seeing this a lot in my market. There are many “first time” investors buying up single family homes and renting them. They are all paying cash… and paying well above what we would pay as rehabbers.

    I am using this to my advantage by wholesaling some of our off market deals to them.

    When we close on a short sale or probate deal, I am throwing it on the MLS at a nice premium and seeing who bites.

  2. Alex Aguilar says:

    I predict there will be a glut of rental homes leading to lower average rents across the board. “Rental home investment” sounds like it will become the new “property flipper”. That being said, more cash transactions are always a welcome sign.

  3. Bilgefisher says:

    I see future opportunity. How many of those 1st time landlords with dollar signs in their eyes will wash out? In 2-4 years, there should be some very motivated absentee owners out there.

    I disagree about rents trending down though. At least in the short term. Vacancy rates are at an all time low in many cities. I expect rents to increase over the next few years.

    Then with any cycle, as the market saturates with rental homes, the prices will drop, but I suspect we’re several years from that.

    Jason

  4. codrin says:

    I would bet that there isn’t a normal distribution of the 50% who plan to hold over the investor experience level. Assuming say 75% of the investors that plan to become landlords are not the newbies and that today’s experienced investors will buy 3 times the amount of houses that a newbie will on average, only about 14% of rentals will belong to one of those newbies. If you factor in that say 33% of newbie flips and 10% of non-newbie flips will become unintended rentals than you have about 24% of rentals owned by a newbie. Still a good amount.

    In regards to planning their real estate empires, the WSJ forgot to mention that of the 59% newbies, 90% will probably fail.

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