Investors muscling in on first-time homebuyers' turf

Investors have the moxie, the moola, and the mindset to muscle in on first time homebuyers and they make no bones about their plans to do so, making a killing in the process.

A new Move.com Investor Survey released today, says by three-to-one, investors will be more active in local markets compared to typical homebuyers in the next two years.

The national survey says investors are bullish about vigorously competing with traditional first-time homebuyers because they know the time is right and they know they’ve got the edge.

(Also see: “Foreign buyers cashing in on U.S. housing closeout sale”)

Move found 65.5 percent of investors surveyed said they expect first-time homebuyer problems to work in their favor — 18.5 percent say they’ll be cash-only buyers, and 80.5 percent expect to wrest cash discounts from sellers.

As revealed in another study, these investors are more like saints than sinners and are coming to market to stick around, rather than flip out.

Picking up the slack left by first-time and rank-and-file buyers, investor action, building now for years, should benefit the sluggish housing market by shrinking the over-supply of distressed and other homes that has pushed prices down to levels not seen in more than a decade.

New investors wear halos

Move says, contrary to the speculative flippers of an era gone by, 50 percent of today’s real estate investors plan to hold onto properties for five years or more. Only 11 percent expect to sell within 12 months of purchase. Two-thirds (67.5 percent) say they’re investing for the long term.

Fifty-nine percent told Move they’re new to the investing game, with 33.5 percent considering their first investment purchase and 8.5 percent in the process of buying and selling their first investment property.

Another 17 percent said they just completed their first transaction and plan to make more. Only 36.5 percent have experience in more than one property transaction.

Newbies, maybe, but they appear to know bottom when they see it.

A recent Pew study found that 81 percent of adults agree that buying a home is the best long-term investment a person can make.

None of this is lost on foreign investors, as the U.S. remained a top destination for foreign buyers for the year ending in March 2011, according to the National Association of Realtors (NAR).

NAR’s 2011 Profile of International Home Buying Activity said total residential international sales in the U.S. for the past year ending March 2011 equaled $82 billion, up from $66 billion in 2010.

Total international sales were split evenly between non-resident foreigners and recent immigrants, while combined total domestic and international existing-home sales in the U.S. were $1.07 trillion.

“This data suggests today’s climate is hot for investing and is attracting a lot of new people that don’t fit the stereotypical deal-driven flippers that buy and sell properties quickly,” said Move, Inc. CEO, Steve Berkowitz.

“They’re mostly entrepreneurial individuals that will make vital contributions to local communities by investing their own money and sweat equity to improve and maintain properties. These personal sacrifices made over the long run will help improve housing stocks, home values, property tax bases, and thousands of local communities,” Berkowitz said.

Investors expect decent returns

Forty-eight percent expect a profit of 20 percent or more from their property investments, a 4 percent annual rate of return over five years — a rate of return that hasn’t been seen for years. Another 40 percent expect a profit of 10 percent, and only 6.5 percent expecting a five percent or less return on investment.

While investors appear poised to outnumber traditional homebuyers, 27 percent will buy a primary residence/investment as a first-time buyer. Forty-nine percent expect to live in their investment property until it’s sold or turned into a rental property.

More than half (56.5 percent) will put their investments to work right away as rental properties, and 28 percent plan to purchase vacation property that they’ll eventually sell.

“The number of renter households has swelled significantly during the recession as homeowners facing job loss and foreclosure have been pushed into the rental market.  The demand for rental units is forecast to rise by 12 percent by the end of the decade, making low- to moderately-priced rental units appear to be a good investment on both a valuation and a cash flow basis,” said Nancy Osborne, chief operating officer of Erate.com, a Santa Clara, CA-based financial information publisher and interest rate tracker.

The Move Investor survey also found 30 percent of real estate investors are interested in buying retirement property as an investment.

“While today’s market is tough for some, it’s also motivating millions to take an unconventional approach and creatively search for new ways of entering the housing market,” Berkowitz said.

About the author

DeadlineNews.Com's Publisher, Executive Editor and Founder, Broderick Perkins, was the first real estate journalist to manage a daily newspaper's online real estate section. He parlayed more than 30 years of old-school journalism into a digital real estate news service offering "News that really hits home!" -- the Silicon Valley bootstrap, DeadlineNews.Com. Network with Broderick Perkins on LinkedIn, FaceBook, Twitter, Google+ and the Bloomberg Business Exchange.

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