Real Estate Investors Changing Approach to Market

Recently, the California Association of Realtors (CAR) conducted a survey that real some interesting findings as it relate to real estate investors and their approach to the market.

Although the following information pertains to the California area, the insights the survey will serve as a basis for  assessing the market in your area as it relates to investing in foreclosed homes and other residential properties.

Investor sales smaller percentage of total sales:

The CAR reports that investor sales transactions have decreased to  32 percent of all sales in May as compared to 39 percent for the same period in 2013. Real estate agents noticed a drop off in investor activity, with most agents reporting one to three clients in the investor category. Twenty percent of the agents reported that they had six or more clients were investors.

Many of these agents probably specialize in working with this category of buyers. In 2013, the survey reported an average of 7 investor clients. That figure dropped to 5.2 in the current survey. More than 50 percent of the agent responding to the poll recorded three or fewer investor sales over the previous 12 months.

This seems to be in line with the trend as the foreclosure inventory continues to move back to the norms prior to the market crash.

More investors choosing less populated locales

Another finding in the reports shots that along with the decline in the number of distressed sales transactions—foreclosures and short sales, a number of investor have abandoned urban locations to find better deals and cheap homes in smaller towns and rural locations. Forty-five percent of investors bought homes in Sacramento, Fresno, Kern, and Tulare counties compared to  just 27 percent as reported in the 2013 survey.

Some other data about investment property purchases that is indicative of an improved housing market:

  • Equity sales  -   70 percent of total transactions
  • Short sales –  18 percent of  total transactions
  • Foreclosures – 12 percent of total transactions

The median sales price for an investment property increased from $292,000 to $320,000—a 9.6 percent jump. The median transaction cost increased from $9,000 in 2013 to $12,000.

More investors flipping properties versus renting

Appreciating home value has given more investors the conditions and return they require to flip houses. According to the 2014 survey, 28 percent of the respondents flipped houses—up from 20 percent in 2013. The percentage of foreclosures and other properties bought and held for rental property portfolios declined from 73 percent in 2013 to 58 percent.

Fifty-five percent of investors stated that they intend to hold their properties for less than six year. Over two-thirds of investors managed their properties, which is the same rate as the last survey.

Sixty-seven percent of investors paid cash for properties and did minor or no repairs. The percentage of investors who completed major repairs increased from 9 percent in 2013 to 17 percent in 2014.  The median amount spent for repairs increased from $10,000 in 2013 to $15,000.

The number percentage of investors who paid cash for properties came in at 67 percent. Eight-six percent of investors that financed their purchases obtained a bank loan. The average down payment decreased from 30 to 24 percent.

Here is a breakdown on the investment property ownership:

  • 47 % – owned 2-5 properties
  • 17% – owned 6-10 properties
  • 12%  – owned one other property
  • 7% – owned more than 10 properties

In the 1014, the average number of investment homes properties owned increased from 6.5 to to 8.3.

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