Real estate investors will buy fewer properties in the next 12 months, according to a new national survey.
"Higher prices are reducing returns on investment and investors are responding by cutting back on their purchasing plans until conditions sort out,” said Chris Clothier, partner in MemphisInvest.com and Premier Property Management Group. “Fewer foreclosures, rising property values and competition from hedge funds are making it tough to find good deals on distress sales.”
The percentage of investors who said they plan to cut back on purchases in the coming year has risen to 48% compared to the 39% who said the same when ORC surveyed investors in August. Only 20% of investors said they plan to increase purchases compared to 39% 10 months ago.
This is in part because there was too much of the same strategy and business plans being used, Gregory Reiter, managing director of Residential Mortgage Research for Wells Fargo Securities told MPA. The strategy was often to buy undervalued property in bulk and flip, but if the whole area is distressed, these aren’t spaces where buyers want to be.
Not only will they be buying fewer new properties in the year to come, over half of investors who own rental properties plan to hold them for at least five years or more, according to the survey.
Clothier said investors will hold these properties to realize the benefits of rising rents and low vacancy rates, but Reiter said there’s going to be too many rentals in the multifamily space in the next few years as brand new, easy-to-maintain apartments and condos start popping back up.
Real estate investors play a major role in the national housing economy. Investors purchased 24% of all existing homes sold in 2012, a decline from 27% in 2011, according to the National Association of Realtors. The drop in purchasing intentions could result in a further decline in investor market share in 2013.