Have you ever listened to a BP Podcast, read the blog, or browsed around on the forums and seen all the creative stuff that investors are doing to source deals, make money, and build wealth through real estate?
It’s amazing what you’ll find there. Folks have incredible hustle, grit, and intelligence, and they are being rewarded for their efforts.
But I have a suspicion that much of this talk ignores a silent majority of real estate investors in this country who are investing in real estate without all the bells and whistles, who are doing so by diligently saving up, investing locally, and working full-time.
Well, BiggerPockets is now collecting BiggerData, and it’s time we start using that data to help real estate investors make informed decisions — and to see if my suspicions have any merit.
Here are 7 questions I hope to answer using data sourced from BiggerPockets many real estate investors all over the country. I plan to answer these questions in a series of polls over the course of 2017.
In this article, I want to highlight these questions, ask for feedback in the comments about which additional polls to conduct, and determine how useful this will be in helping new investors make important decisions about how they will go about approaching their first or next real estate investment.
1. Do a majority of investors use LLCs to invest in real estate?
“Do you need an LLC? Absolutely. There is no debate about it.” — A lawyer on BiggerPockets
Many investors are led to believe that this is a must for their situation, and that all real investors are using LLCs. While I’m sure that many real estate investors do use LLCs, I’m sure that an equal number do not, and that there is, in fact, good reason why this is not an absolute.
Over 50% of landlords taking this poll will indicate that they DO NOT use an LLC for any of their rental property investments, and 75% will not use one for at least one property in their portfolio.
Landlords: Is your property held in an LLC?
- All of my property is held in one or more LLCs
- All of my property is held in my own name
- Some property is owned personally; other property is in an LLC
- My property is in an entity other than an LLC
- I do something very fancy with LLC layers, trusts, etc.
We’ll find out!
2. Are investors really using “creative” finance to buy their very first rental properties?
Lack of capital is one of the major barriers holding new investors back from real estate investing. But I suspect that polling will bring bad news to cashless aspiring investors unwilling to house hack. I believe that the data will confirm that over 80% of investors did one of three things to acquire their first property:
- Used owner-occupant financing and lived in the property for a time
- Used a traditional down payment with bank financing
- Bought the property with all cash
Sorry, gurus! Most investors will be purchasing property in predictably boring ways, with over 80% of investors acquiring their first property with a typical down payment and/or cash or will be owner-occupants who vacated but held on to the property.
Landlords: How did you come to own your first ever rental property?
- I paid for it entirely with cash
- I borrowed from a private lender (not friends or family)
- I borrowed from friends or family
- I put down 10-25% and used a conventional mortgage
- I formed a partnership or syndication
- I purchased a rental property with a commercial loan
- I kept a former home or house-hack after moving out
- I came into possession via inheritance or a gift
3. Are newbies actually buying off-market real estate deals on their first investment?
Really? Are investors really buying their FIRST property off-market by finding a motivated seller? Is it real life that people are sending direct mail messages by the thousands, forgoing work with a licensed real estate agent, and buying directly from a seller on their first deal?
We’ll find out. 🙂
Over 85% of investors will answer this question with a “yes.”
Did you buy your first rental property with the help of a real estate broker or agent, and was the property listed on the MLS?
- Yes, I bought a property that was listed on the MLS at the time of sale
- No, the property I bought was not listed on the MLS when I acquired it
4. Are people really quitting their full-time jobs to go into real estate investing?
The decision to quit a job to invest in real estate never even made a little bit of sense to me. It seems like it’s pretty easy to get a mortgage if you have a job — and nearly impossible if you don’t have a proven income stream.
I’m going bold — I bet that over 85% of current landlords were working a full-time job or operating a business they own as a primary source of income full-time when they bought their first real estate investment.
Related: Why People Move and What The Data Means for Real Estate Investors
Which best describes you when you bought your FIRST rental property?
- My spouse or I was working a full-time job
- My spouse or I was working a full-time job, but quit it as soon as I bought my first property
- My spouse or I was working full-time on a business I owned
- My spouse or I was working part-time
- Neither my spouse nor I was working
5. Are investors really using property management — is real estate truly passive?
Many new investors think they will manage property themselves, while others plan to hire it out. Property management, like any other job, is a worthwhile pursuit for some investors, but not for others. I suspect that the bulk of landlords manage at least some of their rentals themselves.
Do you manage your own rentals?
- I manage all of my rental properties
- I manage the majority of my rental properties
- I manage a minority of my rental properties
- I manage none of my rental properties personally
6. Do investors invest out of state?
Investing out-of-state is frequently talked about on BiggerPockets, but I suspect less frequently acted on than purchases local to the investor.
Seventy-five percent of current landlords have never purchased real estate that was not within a 1-2 hour drive of where they were living at the time of purchase. Eighty percent of investors will respond that the majority of their real estate portfolio is within 100 miles of where they live currently.
Landlords: Have you ever purchased investment property that was not local to where you lived?
- I have never purchased property that was more than 100 miles away from where I was living at the time of purchase
- I have purchased property that was more than 100 miles away from where I was living at the time of purchase
Landlords: Is the majority of your current portfolio within 100 miles of where you live?
7. Who are real estate investors and what do they do?
I suspect that the silent majority of rental property owners in this country are regular folks who happen to be frugal, smart with their money, and hard-working middle class wage-earners building up passive income streams over the years.
Let’s find out.
Seventy-five percent of real estate investors will fall in the first two buckets.
Landlords, what best describes your full-time profession at this moment?
- I work a full-time job that pays me a middle class salary ($50-$100K)
- I work a full-time job that pays me a large salary ($100K+)
- I work a full-time job that pays me a modest salary (<$50K)
- I am an entrepreneur with my own business
- I am a full-time real estate investor living off my real estate income
I hope that the results of this polling help real estate investing seem far more achievable for hard-working, thrifty people who are consistent and long-term about their pursuit of wealth and financial freedom. I also hope that the data works in the opposite manner for folks who are looking for a totally passive investment that will make them rich overnight with no personal liability or risk whatsoever. If you aren’t in position to invest and aren’t willing to tackle the challenges as they come up, you probably shouldn’t be investing.
I also hope to be proven wrong. I think that we have an incredible gift here at BiggerPockets in the sense that we are able to quickly and easily poll hundreds, thousands, or even tens of thousands of investors on a regular basis, depending on the subject, and get samples large enough to be meaningful. I am incredibly grateful for this gift. I hope that you find value out of this data as well!
In the comments below, please provide your own predications, and suggest additional future polls for us to conduct!
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What would you like to see polled? Leave your questions, comments, and predictions below!