Home sales rising. Is a new wave of home investors forming?
Existing home sales rise in November and are now 34 percent higher than the mid-2010 low. Low prices and interest rates are drawing some new investors to real estate.
Investors weary of the wobbly stock market and slim returns from certificates of deposit might take a cue from attorney and business coach LeTonya Moore. She's investing in real estate.
This summer, she bought a town house in Tampa, Fla., for $37,000 in a foreclosure sale. She'll live there for one to two years and then rent it while shopping for more properties in the area. Overall, she plans to make three real estate investments a year over the next four years so she can achieve her goal of financial independence.
"Real estate is as good, if not better, a long-term investment than the stock market," she says.
The housing downturn is creating what looks to be a new wave of real estate investors, who are snapping up homes at distressed sale prices. But this time, instead of flipping homes, they plan on holding them for the long term and renting them out. This combination of a steady income stream and the potential for future price appreciation looks like a better, more comfortable, bet to many people than investing in stocks or bonds. Record-low interest rates combined with still declining home prices has made homes so affordable that existing-home sales edged up again in November and now stand at 34 percent above the housing market's cyclical low point in mid-2010, the National Association of Realtors (NAR) reported Wednesday.
"People see an opportunity to earn returns at a time when job prospects and returns from traditional investments are dismal," says Jeff Ball, president and chief executive officer of Econohomes, an Austin, Texas, firm that buys distressed residential properties in volume and resells them. "It's steering them in a new direction with their investment dollars."
These moves are helping to provide a little stability to a housing market still struggling with falling prices. Investors bought 19 percent of the homes sold in November, a little above their 17 percent share in 2009 and 2010, according to the NAR, based in Chicago. Last year, 51 percent of buyers of investment properties planned to rent them to others, the association said.
Of course, some landlords have been buying homes and renting them out for years. Now, they're being joined by a new slate of investors. In a survey this summer, 51 percent of brokers and sales associates of ERA Real Estate said they were seeing more first-time housing investors in their markets. In a survey by Econohomes late last year, 39 percent of those who had bought – or wanted to buy – distressed properties selling for under $50,000 were new to the market.
Since 2009, Janet Talboys of Birmingham, Mich., has purchased five homes to rent in the Detroit area – all with cash, all sold as foreclosures, and all under $10,000. "My goal is to own 10 houses as investments," says the homemaker, who embraced real estate investing after a stock market swoon sent her retirement savings plummeting. Thanks to her property investments, Mrs. Talboys says she's been able to recoup her stock market losses.
Initially, Talboys bought the real estate by using assets from closed-out mutual funds that she had placed in a savings account. Now, she taps her retirement savings through a self-directed-style IRA. Unlike a regular individual retirement account, a self-directed IRA is held by a trustee or custodian for the investor and can contain a much broader array of assets – including investments in real estate.