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Real estate investing: Profitable but risky game

Over one in four real estate sales, 28 percent, are to buyers who are seeking an investment rather than a place to live, according to a survey by the National Association of Realtors.

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Your typical investor isn't the millionaire next door. The average annual household income of an investment buyer is about $81,400, the study released in 2006 reveals. Investors are also a lot more conservative than you might have heard, opting to put an average of 22 percent down. "They're not high-risk loans," says Al Mansell, 2005 president of the association. "They're low-risk loans."

Investors, as a group, are targeting slightly less expensive homes, according to the survey. The median price for a single family home was $208,700 in 2005, when the survey data was collected. But the median price for an investment home during that same period was $183,500.

Buyers also like to stay close to home. On average, investors keep their purchases within 15 miles of their own homes, the study shows.

Bryan Sklar fits several of the averages and skews others. An account executive with a Richmond office equipment firm, he has purchased all five of his investment homes within the last 2 ½ years. As the association numbers would suggest, he has a geographic target area.

At just under $100,000, Sklar's household income is slightly higher than the average in the Realtors' study. At the same time, he's paying slightly below the average, between $80,000 and $115,000, for his investment homes. "But I don't really limit myself," Sklar says.

"I evaluate all the homes that come available for sale, and see if the numbers work, see if it's a good rental," he says. The goal: a property that will produce a steady income stream.

Sklar has both an IRA and a 401(k), but likes the idea of investing in real estate to supplement his retirement. "I'm happy with what I'm doing now and trying to keep it basic."

What appeals: "Being able to use a little bit of your own money and a lot of the bank's money but get all the benefits from the investment," he says. "I feel like it's a lot more stable than any investment out there."

There's also the fun factor. "I enjoy hunting for deals and the interaction with people," he says.

Is there a 'typical' investor?
Today's investor is probably "a boomer," says Bill Carey, co-author of "The New Path to Real Estate Wealth." "I would say that 70 percent to 80 percent have been in the stock market and were burned in 2000 and 2001 or just do not feel they have any control over what's happening."

He believes their household incomes would probably form a bell curve, starting around $50,000, with the bulk of investors making between $80,000 and $100,000 "where people are encountering the alternative minimum tax and looking for some way to help themselves out," he says.

Jack Guttentag, author of "The Mortgage Encyclopedia," disagrees. "I don't know that there is any profile," he says.

Many times, investors who have one investment property tend to buy close to home and act as their own landlords, Guttentag says. "And if they are a handy person, that is certainly a big help.

"The only pattern I've noticed is they go for three bedrooms or more," says Guttentag, also professor emeritus of finance at the Wharton School. "I don't think a lot of people want to invest in two-bedroom houses."

Real estate investing appeals to people across the age and ethnic spectrums, among them immigrant groups, young people in gentrified areas and people who have retired and are looking for something to do, says William Poorvu, co-author of "The Real Estate Game."

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'05 Real Estate Guide
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