A new, ORC International survey shows that a majority of individual investors would be interested in investing in single-family rental (SFRs) properties, if they could do it without becoming hands-on landlords. The online survey, conducted late spring, was sponsored by HomeUnion, a national real estate investment management firm.
The survey said that 59 percent of investors would be encouraged to purchase SFR investment properties. Of this group they believed these investments could generate higher cash flows than traditional fixed income products and could offer tax benefits. Slightly more than 20 percent of investors were attracted to the potential of asset appreciation. Other benefits that investors associated with this new asset class were portfolio diversification and asset allocation (16 percent) and leverage through the use of financing (12 percent).
“Increasingly individual investors are following the lead of institutional investors and are looking to real estate investing as an alternative to traditional, low-yielding bond and mutual fund options,” said Don Ganguly, chief executive officer of HomeUnion. “These investors are attracted to the potential for income and for asset allocation, not the prospect of a quick gain by house-flipping.”
Investors not Landlords
Probably the biggest barrier to entry, according to the survey, was concern over the responsibility of being hands-on landlords. More than half of investors said they would definitely be interested in investing in a rental property if they didn't have to be a hands-on landlord and had the assistance of a reputable company to handle the selection, purchase, rehabilitation and management of rental homes.
“The prospect of calls at two in the morning about backed up toilets, or the hassle of finding and vetting tenants, has kept millions of potential individual investors out of residential real estate, even as billions of dollars of institutional investments have poured into this new and growing asset class,” Ganguly noted. “We believe, and the ORC International survey confirms, that individuals are interested in the benefits of investment in SFR if, like their institutional counterparts, they can outsource the logistics of property management to reputable turnkey vendors.”
Taking distance out of the equation
According to the ORC International survey, a third of investors said they would buy a property in another market to get a better return on their investment. That number rises to more than 50 percent if they could rely on the services of a firm with strong knowledge of that local market; if the property was managed by a trusted national firm; or if they had access to state-of-the-art information about the local real estate market place.
“In many high-cost areas investing in local real estate does not generate the returns that are available in other parts of the country,” said Ganguly. “We mitigate the risks of remote investing by using data, analytics and boots on the ground to assess the market, select the right properties and then find the best property managers. This is what institutional investors have been doing for the past two years. Now this level of professional assistance is available to anyone looking to diversify from the stock market and looking to improve the rate of return on an individual retirement account.”
Ganguly noted that last year, more than one out of five homes purchased in the United States was an investment property. Earlier this year, cash sales—a relatively strong proxy for investor activity—accounted for more than 40 percent of all sales, according to CoreLogic. For the most part, however, very few of these investments were done using IRAs. Currently, individual investors have more than $3.9 trillion in these accounts, so even a small reallocation of IRA assets away from the stock market or traditional fixed income investments could potentially have a major impact on the housing market and the returns investors see on their IRAs.