Takeaways:
- Investors have turned more than 3 million former foreclosures into rentals, which made single-family rentals the fastest-growing rental category.
- According to NAR, 86 percent of today’s investment buyers report that now is a good time to purchase real estate.
- Plus the five reasons now is the time for investors.
Whom would you rather represent: the average American homeowner who moves once every eight years or the average American homeowner/investor who moves every eight years, buys an investment property every two years and sells one every five years?
With the decline in foreclosures and the corresponding decline in investor purchases, many people have the impression that residential real estate investing is dying out or returning to pre-boom levels. Nothing could be further from the truth.
Real estate investing is a big business. In the six years that have passed since the foreclosure floods first hit, investors have turned more than 3 million of them into rentals, which made single-family rentals the fastest-growing rental category.
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Those who have been bitten by the investment bug are eager for more. According to NAR, the bulk of today’s investment buyers (86 percent) report that now is a good time to purchase real estate.
Newcomers are signing up every day, drawn by single-family rentals’ dual revenue stream that can produce returns exceeding 8 percent. Like all real estate, rentals generate capital gains from appreciation.
Investors who bought foreclosures are doing OK; they fixed them up, rented them out and created capital gains that are hard to beat today, but investors who buy wisely in today’s hot markets are doing just fine.
The second revenue stream is cash flow from rental income, which sets single-family rentals apart from the vast majority of securities investments that most Americans are familiar with.
Rents are soaring and vacancy rates declining, which makes it easy for landlords to keep their properties rented, and their rental income is outpacing inflation. Even in moderate markets, millennials find single-family rentals to be the perfect steppingstone to homeownership, and they are creating extraordinary demand for rentals.
[Tweet “Rents are soaring and vacancy rates declining, which makes keeping properties rented easy.”]
For agents and brokers who understand single-family rentals, these changes and others are creating new opportunities that didn’t exist at the peak of the foreclosure floods.
It’s a different way of looking at real estate, where capacity rates and operating costs are just as important as resale value. Here are five reasons why this is a great time to do business with investors:
1. Millions of small-time investors are looking for good agents
Four years ago, foreclosure auctions and preforeclosure sales — transactions that don’t create a commission — accounted for the lion’s share of deals in the hottest markets.
Those days are over. According to the National Association of Realtors’ Realtors Confidence Index in June 2014, distressed sales were only 8 percent of total sales that month.
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Investors are hunting harder for properties, which make them a great market for buyer’s agents who know what constitutes a good investment property and for sell-side agents who know that investors aren’t so limited by geography.
Buyers might live 50 miles away — or across the nation.
2. Commissions are higher today
With investors buying more REOs and properties listed in MLS, the days of the 30 percent foreclosure discount are gone, and many investors pay close to full price.
The properties they buy cost less to put into rent-ready condition, which saves investors 10 to 20 percent of their purchase price, but higher purchase prices mean larger commissions.
3. Fewer deals fail
Your sellers will love dealing with investors because they pay all cash (though usually not their own cash — most investors have their own investors). Buyers who don’t need financing also don’t risk losing a deal to a low appraisal or a last-minute problem with financing.
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4. You can stand out in the crowd
Investors don’t hire agents because they’re referred by a relative. Relationships are all business, and they are looking for competence, brains and expertise.
Whether you are buying for investors or selling to them, learn your local market from the perspective of an investor. Network with local real estate investment clubs and social media.
5. There’s been a change in perception
Perhaps the most important reason it’s a great time to be working with investors is change in the way many people think about it today — people who just a few years ago would never have considered real estate investing.
“Many of my customers ask me how they can attempt to buy their next home, while holding on to the one they already have — a complete turnaround from the mentality of the seller of yesterday,” said Will Stein, broker and owner of Belair Realty in Bowie, Maryland.
“Many mom-and-pop homeowners might not be savvy investors, but they call me all the time saying they just want one rental property to help with long-term cash flow. It’s becoming the new 401(k) — and it’s smart.”
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It’s a completely different world out there. Investors have become anyone who can afford to buy a second home and put it on the rental market. And with soaring rents and a decline in vacancies, now is an excellent time to assist your clients in becoming investors.
Steve Cook is editor and co-publisher of Real Estate Economy Watch and provides communications consulting services to leading real estate organizations. Visit him on LinkedIn and Facebook.
