Why Investors Undeniably Matter to the Real Estate Market

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Looking back at the history of the real estate market, starting with burst of the housing bubble that was in full swing around 2007, it was a rough time for everyone.

We all know how the fear of foreclosure escalated — unsurprising, considering the record high in 2009, where almost 3 million homeowners received at least one foreclosure filing. The total number of households receiving a foreclosure notice in 2009 were 2,824,674, which was almost double the number from 2007. That is an astonishing one out of every 45 households receiving those notices.

Looking back, we all realize there were many, many reasons for those filings, and a cycle was starting where some of those filings were homeowners, and some were investors. No matter what the origination of the filing, the economic crisis, falling values, falling rents and job losses were all piling on top of one another and leading to owners and investors alike having to make tough choices on properties.

The real estate market’s downturn was a massive blow to the U.S. economy as a whole, intensifying the impact of the recession. So the cycle was a repetitive, viscous washing machine churning through people and households and spitting them out the other side!

Even now in 2014, we’re still feeling the unease leftover from the crash. Recovery is still in progress. We’d like to hope that the real estate market will return to “normal” eventually, but only time will tell.

Even that word — “normal” — has dozens of different meanings depending on where each market is and how hard the housing and economic downturn hit that particular market. Still, there is one common theme throughout many markets around the country…

Real Estate Investors Jump-Started Recovery

In the beginning of 2010, real estate investors started to hit the real estate market en mass. They had been there all along, and in many markets, real estate investors had been buying in large numbers beginning during the boom times for housing prices, and they only sped up with the housing downturn and foreclosure uptick.

Related: The 7 Deadly Pitfalls that Threaten Real Estate Investors

With mortgage rates at the time at an all-time low and demand sky-high, real estate investors took the market by even bigger storm in 2010, purchasing homes in foreclosure and converting them into rental properties.

In 2011, real estate investors were responsible for the 64.5% increase in investment home sales, which contributed immensely to helping the real estate market get back on its feet. Due to increasing number of renters, combined with excellent mortgage rates, there was hardly a better time to be an investor. Real estate investors experienced solid profit, while also stimulating the flagging real estate market.

The rental market flourished, and the market saw investors buy 1.23 million homes. It was largely instrumental to the beginnings of the recovery that are still going on today. In some markets, investors accounted for over 50% of the home sales in some years, and often those transactions were closed as cash transactions. That allowed for quick closings and faster turn-around of dilapidated properties.

Why Investors Matter

Beyond their contribution to the recovery of the real estate market, investors are part of everyday services and exchanges that are helpful not only to the market locally, but to individuals in need.

There are times when real estate investors and the people working with them get a bad rap. Some complain that the all-cash investor offers on properties push home buyers out of the market, and we have all heard different landlord horror stories. While there are stories that support these points of view, many real estate investors also provide services that people need and want. When an honest individual enters the real estate investment business, great things can happen.

Too often, there is a story that is not told about investors. Most hire local labor and purchase materials from local stores. Take, for instance, my company. Over $15 million was spent in 2013 for renovation materials, labor costs and services, and all of those dollars were spent with local companies. That is a mini economic engine in a market, and we are only one company! Imagine the impact that hundreds of investors have on a market when they are buying thousands of properties in a year!

Some of those properties are held for longterm rentals, and others are put back on the market and sold to homeowners. All are refurbished at some level, which is a tremendous benefit to neighborhoods and communities (in most cases!).

These story lines are often ignored by the critics of real estate investing.

An Alternative to Homeownership

In the wake of the housing crisis, combined with changing priorities and economic situations, real estate investors offered (and still offer) an alternative to purchasing a home. Whether it is former homeowners still hurting from foreclosure or millennial struggling to find employment, rental properties have become an integral part of the real estate landscape.

Homeownership nationwide has fallen to what have been historic lows and estimated at roughly 64% of the households occupied by homeowners. That tells us that 3.5 out of every 10 properties are owned by investors and occupied by renters.

Despite the fears of some investors that they (and renting) would become irrelevant as the real estate market recovered, all signs points to the opposite. Apartment builds are at an all-time high and more and more people are finding that they prefer renting over homeownership for any number of reasons:

  • Fear of foreclosure

  • Inability to find mortgage approval

  • Transient lifestyle

  • Urban preference

  • No maintenance responsibilities

  • Avoiding further debt

A Way Out From Underwater

Apart from offering an alternative lifestyle to homeownership, investors are enormously helpful to buyers and sellers alike. Investors have helped many a seller escape foreclosure and consequently a devastating blow to their credit. Real estate investors often present quick solutions for sellers desperate to make a deal.

In cases of accidental ownership (death, divorce, probate), real estate investors make it easy for accidental owners to work quickly to sell unwanted inherited properties.

Related: Are Real Estate Investors Really Necessary?

Seasoned investors are skilled in preparing and closing deals. Additionally, real estate investors, unlike traditional home buyers, aren’t looking for their properties to be immaculate. For buyers and sellers in need of a quick sale, real estate investors are often the solution — whether by bringing new opportunities to the table for those who feel like they’re out of options, a rescue from a foreclosure or simply providing people with a place to call home.

Conclusion

If you’re looking to join the business of real estate investment, know that you’re not only entering into a world of opportunity for passive income for yourself, but that you’re also helping the people around you — individual buyers, sellers and the local economy. Real estate investors have tremendous impact on the people and homes of their communities and sometimes communities around the country.

The positive story is not always told, yet any investor entering the market today can absolutely have a positive impact.

What do you find is the most rewarding part of being a real estate investor?

Share with us in the comments.

About Author

Chris Clothier

In 2005, Chris Clothier (G+) began working with passive real estate investors and has since helped more than 1,100 investors purchase over 3,400 investment properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.

3 Comments

  1. Chris, very well put. I was spending over $5,000 a month on materials to rehab the REOs that I was buying. This alone was providing jobs in the local area, increasing the tax role and improving the community just to name a few.

    When property sets vacant it creates many problems and hardships for the local area. Years ago, my town was showing me properties they wanted me to buy and fix up, now they seem to not care! A side note: we have a lot of abandon properties in our area and the crime rate keeps getting higher.

    Because of all the new government rules put on banks and mortgages, investors are having a hard time purchasing property. Investors provide employment, adds to the tax base and improves the neighborhood. Without us there is no growth, just empty buildings, stores included.

  2. Great article, Chris. I agree – investors play a critical role and help to bring up values in the neighborhoods where we renovate houses – often the “ugliest” houses on the street. In addition, many investors facilitate owner financing options that enable buyers with less than perfect credit to purchase homes.

    It seems like investor demand for properties has cooled off a bit as prices have risen in most markets over the last 3 years, and hedge funds scooped up much of the inventory in most major markets. But there are still plenty of depressed properties out there, and many smart investors that remain active and valuable participants in the housing market.

  3. Bruce Olsen

    Thanks for the fine article Chris.

    As small investors my wife and I can’t have quite the macro effect that your company can, but as small investors we can still have a huge positive impact on the lives of the people we work with.

    About a year ago a colleague of mine bought a SFR that was being rented. The intent was originally to rehab and resell, but he learned that the tenants wanted to buy it and stay. They had some minor credit issues that prevented them from securing a conventional mortgage, so after closing my colleague used part of their rent on a credit repair service. In about 6 months their credit improved and they were able to buy the home at a wholesale-level price, leaving them some money to rehab it to their liking.

    Investors see so many sellers with serious problems, and we can’t help most of them. When we are able to help and still do a decent deal, it’s highly rewarding, even if it lowers profit by a few dollars for credit repair or whatever else they may need a hand with.

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