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.
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
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
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."
also the fun factor. "I enjoy hunting for deals and the interaction with
people," he says.
Is there a 'typical'
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.
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
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."