Real estate investment focus rivals stocks as wealth builder
Jan Stapleton - 2023 NETAR President
There was a time when homeowners – and those who wanted to be owners – were told to first think of their property as shelter and then as an investment. That’s not the case for many in today’s market.
It shouldn’t be surprising that some of the 40 and under population are looking at a different real estate wealth-building strategy than their parents. Millennials account for a little more than 30% of Tri-Cities area residents. They came of age during the Great Recession. They watched their parents struggle with losses from over-leveraged mortgages. Still, they’re savvy enough to know that real estate has a good wealth-building record. In fact, most now think that real estate is a better wealth builder than stocks.
Their solution is to buy an investment property before their primary residence. That trend began taking shape last year and has grown. One explanation came from a survey from Mynd, a firm that leverages technology tools. Almost half of Mynd’s respondents (43%) of younger investors said they plan to continue renting while building income from an investment property. That compares to only 9% of Baby Boomers and 27% of GenXers considering that investment path.
The trend has a local and remote component. The most recent count of how many local single-family rental properties are owned out-of-state was almost 15%. The share is higher for large apartment communities, but that’s another story.
While there are signs the number of out-of-state investors has increased in the Tri-Cities region, it hasn’t swamped the local dynamic. Real estate investors have always been part of the local economy, and most of them are locals. But they have been under the media and the public’s radar.
Look at the number of single-family and condo rental properties. There are close to 70,000, and by the most current count, and only 15% are out-of-state residents.
Most cash-flow investments – the most popular model – are local mom-and-pop operations. They vary from local professionals to the couple who downsized or upgraded. They are taking advantage of an age-old practice of retaining ownership and renting to provide another revenue stream or passive income for their family. And since most of those older property have a low-low mortgage rate, why not?
Although the numbers may not be as large, the fix-and-flip crowd is also part of the trend. They include full-timers and legions of part-timers.
Flips account for about 10% of all existing home sales. Successful flippers are well-formed about the local market because they need to buy low, accurately estimate the cost of repairs, and resell the property for more than they put into it.
Sometimes, that’s easier said than done because distressed property sales are nowhere near the levels they were before the pandemic. And short sales are challenging because of the significant price appreciation local owners have received during the past two years.
Some of the local investors are wholesalers. They find motivated sellers – often those in economic distress or desiring to sell without listing and negotiating – estimate any repair cost and then assign the contract to another investor for a fixed profit.
Another new type of investing that has begun to show up locally is crowdfunding. They collect from many investors to purchase and manage income-producing properties. Examples include some of the small and medium-sized apartment complexes.
If there’s any secret to real estate investing, it’s knowing the basics and get used to deep diving into local market data and trends. Although you often hear investors stumbling into great deals, ill-informed newbies end up in the loser column.
NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,800+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at https://netar.us