In 2017, TRES Labs (realtywebsites.ca) surveyed 250 real estate agents and asked them some questions about real estate investing and decision-making tools. It turns out that approximately one-third of real estate professionals are also investors, having owned at least one rental property at some point. For the remaining group, we asked the to respond based on their experience working with investors. The result was a comprehensive report of qualitative and quantitative data that provides insight into the investor-agent relationship and the niche market of real estate investment properties.
As the results were compiled, 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. Knowledge of what is for sale is acquired from the MLS System or a variety of other techniques.
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, contrary to popular media.
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 (2017).
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. It seems that newcomers to investing are disappointed because foreclosures take work to realize but those that come away a bargain are happy.
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 well-priced equity, deferred costs through incentives, or the potential to develop equity.
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 professor at the University of Wisconsin and breakout theorist on real property valuation. 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.
If you are interested in talking about how advanced analytic solutions can help your investor-focused business, and you have a minimum investment of $25,000, please contact us today.