So You Want to Be an Investor?

Home prices are trending up, interest rates are at an all-time low, and distressed properties are on a downward spiral; and with that, investors are once again lining up to buy houses.

A joint study by BiggerPockets.com/Memphis Invest undertaken by ORC International, shows that one out of eight – 28.1 million Americans – either consider themselves to be residential real estate investors or own residential investment properties today. Many of them are first-time investors.

“Investors have been driven into the market by low interest rates and perceived discounts in market prices of homes,” says Joshua Dorkin, founder and CEO of BiggerPockets.com, a real estate social network and online platform for investors, consumers and professionals. “The vast numbers of [real estate owned] properties have been an indication to potential investors that they can get deals in the marketplace.”

During the boom years, speculation and greed drove investors, Dorkin says.

“Today we’re seeing far more people who are invested in being in the game long term,” he says. “These folks are buying based on fundamentals and cash flow instead of the hope of appreciation.”

Many BiggerPockets users are 30 to 65 years old and hope to supplement their income with real estate investments. According to the study, most active real estate investors plan to buy as many or more properties over the next 12 months as they did in the past 12 months.

“More and more, people are learning that you have more control over the success of your investment when dealing with real estate, versus stocks, bonds and other ‘traditional’ investments,” Dorkin says. “Your decisions have an effect on how well that asset performs, offering more control.”

According to the National Association of Realtors, sales of investment and vacation homes jumped in 2011, with the combined market share rising to the highest level since 2005.

NAR’s 2012 Investment and Vacation Home Buyers Survey, covering existing and new-home transactions in 2011, shows investment-home sales surge 64.5 percent to 1.23 million last year, a huge jump from 749,000 in 2010. Vacation-home sales rose 7 percent to 502,000 in 2011 from 469,000 in 2010.

One reason for this increased activity is a rise in rent for some markets. Allan Dechert, broker at Ferguson Dechert Real Estate in Avalon, N.J., says that he and his peers had a really busy summer by the Jersey shore. In Dade County, Fla., too, real estate agents have been very busy. Domestic investors there are now competing with buyers from Canada, Argentina, Brazil, China and the U.K.

“Until about a year ago, the inventory used to be five to six years’ worth. Now we have a three to six months’ supply,” says Matey Veissi, broker and owner of Miami-based Veissi & Associates.

Here are a few tips from Dechert and Veissi for first-time investors:

• It’s all about location: Do your research on the neighborhood. If you are looking to make money off rent, make sure it’s within walking distance of attractions and stores. Consider the school district, unless it’s a vacation home. Look into property prices in the neighborhood and talk to neighbors. “Most people spend more time researching while buying a car than a property,” Veissi says. “Always remember: This is the biggest investment in your life.”

• Find a good agent: Ask friends and family for references. Drive around town and look at signs before interviewing a few agents. “Hire a reputable agent and interview former clients,” Veissi says. “Good Realtors are worth their weight in gold.”

• Look into your finances: Make sure you have a good credit score. Look for a home that fits into your budget. Cash is king in this economy, but a good credit score with a 20 percent down payment can get you a good mortgage deal.