Steve Murray, REAL Trends, and Andrew Waite, NEXZUS Publishing Group. The authors thank Tim Herriage, 2020 REI Group, for providing inspiration, support and practical advice throughout this project.
The Iceberg Report follows previous studies by the authors in 2008 and 2012 that examined the market size and investor value in single-family residential (SFR) real estate investment. We know this market is large, but it is not monolithic. These investor studies were a quantitative beginning. The Iceberg Report provides a deeper understanding of investor market size, value and behavior as these companies and individuals invest in properties, goods and services.
WHAT‘S AN INVESTOR AND WHO’S A CUSTOMER?
What is an investor, and what qualifies individuals in this group to be prospects for the deluge of offers of property, goods and services? Many vendors’ offers fail, even after massive investment. We wanted to identify which investors are not prospects and which are highly qualified and understand why. The answer lies in the way they approach real estate and real estate investing. Is it just an asset? Or is it a business about investing in the asset? We concluded the estimated two million individuals who are qualified prospects conduct SFR investing as a business.
IS INCOME REAL ESTATE A MAINSTREAM ASSET?
A decade ago real estate investment was considered a speculative niche for “mom and pop” hobbyists. We found goals, plans and outcomes associated with demographics, net worth proportions and recurring behavior around SFR real estate investment to have moved from being promoted as bait for an investment education course to a mainstream asset for serious investors. Now, in all segments surveyed, SFR investment is the basis of a sustainable asset class, accessible by most and capable of generating returns that exceed those of widely available traded asset classes. Recognition is growing.
WHERE DO REAL ESTATE AGENTS FIT IN THE SFR INVESTMENT BUSINESS?
The Invaluable Investor Study began in 2008 trying to understand what investors mean to Realtors®. The Iceberg Report flips this question to understand what agents mean to investors. The background is that in 2016, 21% of all home resales ended up with investors as a recurring client class. Savvy agents are very much a resource that qualified investors and real estate investment businesses use extensively. This remains a perennial truth.
WHERE DOES THE MONEY COME FROM TO FUND DEALS?
Is it cash, hard money loans, lines of credit or self-directed IRA funds? Cash remains king, but this appears to be a matter of convenience first and definition second, as hard money and lines of credit translate to transactional purchase cash that is taken to the next stage once the deal is readied for resale (flip) or as a stabilized rental (buy-and hold). For a flip, it is “rinse and repeat,” or refinancing for a rental property or portfolio. Benefits flow from a lender “arms race” in product, term and easier business process development.
DO RENTAL PROPERTIES BENEFIT FROM THIRD-PARTY PROPERTY MANAGEMENT?
The quick answer is “no, yes and sometimes.” When responses are unbundled by segment, sophistication, property management approach and their understanding of client ownership goals, it is apparent there is a vast untapped opportunity for a class of managers who embrace investors, portfolio performance, and mutually profitable outcomes.
The Iceberg Report is the first report in our mission to understand the investor market by segment, behavior, and effect and to qualify those who are truly viable prospects and customers