A New Breed of Real Estate Investor: The Value Investor
As the real estate market makes a joyous recovery, the media is ablaze with evidence that investment buyers are retreating—or are they?
While many institutional and cash buyers flocked to the market last year, snatching up distressed properties, erasing shadow inventory and driving up prices, we are currently seeing a decrease in interest from these “get rich” investors.
Investors accounted for 20.2 percent of home purchases in May—still high, but down from a peak of 23.1 percent reached in February, according to the Campbell/Inside Mortgage Finance survey of real estate conditions.
Reports from the National Association of REALTORS® show a decline in foreign buyers — a big source of investors in U.S. single family homes and condominiums, and a recent release by RealtyTrac show that hedge fund investors are slowing as well.
However, while last year's house-hungry investors seem to be packing away their cutlery, a new breed of investors are approaching the table. These conservative, or “value,” investors are purchasing properties in cities that are showing sustainable promise.
Instead of hunting for discounts, value investors seek stability. They track where people are moving, where the job market is growing, and where home prices have been the most stable.
“They recognize that housing, when it performs normally, generates a reliable dividend and a reliable capital appreciation.”
According to a recent survey released by Bankrate.com, real estate is still America's second favorite investment—after cash. And with the market turning around, more of these reliable investors will come into the fold.
CoreLogic’s Pending HPI released this week showed that July 2013 home prices, including distressed sales, are expected to rise by 12.5 percent on a year-over-year basis from July 2012 and rise by 1.8 percent on a month-over-month basis from June 2013, the fastest pace since 1977.
“In the first six months of 2013, the U.S. housing market appreciated a remarkable 10 percent,” said Dr. Mark Fleming, chief economist for CoreLogic. “This trend in home price gains is moving at the fastest pace since 1977.”
This stability is what draws in the new breed of investors. “They aren't looking for a quick hit, but a long term business,” says Greg Rand, CEO of OwnAmerica. “Volatility repels them, and strong fundamentals attract them,” says Rand.
While the fast-acting investors of the past did help heal the market, this new breed of investors will sustain it.
“They are buying intelligently, choosing great cities with stable performance and buying nice houses for long term rental,” says Rand. “Texas, Carolinas, Tennessee, Ohio are all getting much busier now, but with that conservative business strategy.”
“It's the mid cap investor that I see as the greatest opportunity,” says Rand. “Folks investing between $5 million and $100 million in single family homes in a few cities.” These are a massive new corporate clientele for the real estate industry that, according to Rand, will impact the housing market in a largely positive fashion.
The value investor is responsible with their market choice, slowly but surely integrating themselves as a permanent class of reliable homeowner.