A survey of real estate salespeople, brokers and investors found that almost one-third of real estate professionals are also investors, having owned at least one rental property at some point.
Conducted last year, the survey by TRES Labs asked 1,350 agents and investors for their opinions on investment properties and decision-making tools.
The result was a comprehensive report that examines the investor-agent relationship and the niche market of real estate investment properties, the company says. Agents were asked to respond on behalf of past clients if they were not investors themselves.
The study revealed that real estate investing is a significant activity among real estate salespeople and brokers. About 91 per cent of respondents said they were Realtors and 30 per cent of this group said they were also investors. Approximately nine per cent of the participants identified themselves as developers.
As the results were compiled, the company says a triangle of priorities emerged: needs, wants and knowledge of what is actually available for sale. An investor’s needs were defined to be factors like a satisfactory CAP rate, return on equity and cash-on-cash returns. An investor’s ‘wants’ seem to be determined by one’s own investing style; a preference for a particular property type, area or equity enhancers like renovations and foreclosure discounts.
TRES Labs says knowledge of what is for sale is acquired from the MLS System or discoverable with some other method.
Next, participants were asked about their specific “wants”. Turn-key, move-in ready homes (income producing) are the most favoured choice among investors. This is followed by “fixer-uppers” (value added), and then properties requiring major renovations or rebuilds (development driven). A perennial favourite is the “classic” rental home with three bedrooms, a fenced yard, located in a blue-collar area and within walking distance to transit and shopping. The study concluded that most residential property investors are not renovators.
When comparing specific property types that were desirable to investors, whole apartment buildings to rent scored highest followed by land to develop and then single family homes to rent or flip. Condos to rent were popular but condos to flip were the least popular residential option. Commercial properties to rent, such as retail storefronts and industrial lots, and apartment blocks to flip were all ranked equally at the lowest end of the scale, the survey says.
Investors said a typical down payment is 20 to 35 per cent and that the average cost to rehabilitate a residential property to resell is over $30,000.
When asked about the role of foreclosures in investments, respondents said that high expectations were created by the media but the reality of the process led to a generally low level of satisfaction. However, when asked to quantify their opinion, the results were generally more positive.
“There seems to be a significant demand for a better selection of foreclosures, which likely speaks to the popular notion that foreclosures are bargains and investors should make them a priority. About 10 per cent of respondents know someone who has paid a subscription fee in order to see lists of foreclosures,” says TRES Labs.
“Investment gurus encourage people to look for properties that have classic investment profiles, such as foreclosures, deals with creative financing and homes with unseen value. Respondents said classic investment scenarios are always in demand and that demand is greater than supply. To investors, these properties represent greater return on investment and lower overall risk through the identification of hidden equity, deferred costs through incentives or unrealized opportunity.”
The study relied on an academic essay series titled Research Issues in Real Estate, by Springer Publications. Some of the texts in the series were dedicated to the late James Graaskamp, a breakout theorist on real property valuation and a professor at the University of Wisconsin.
“He is often quoted as saying, ‘Much of the risk in real estate investment is created by inadequate research and organization of data’, which, if addressed systematically, would make it easier and more profitable for investors to find and purchase rental homes that suit their needs,” the company says.