The concept of investing may make you think of buying and selling stocks and bonds. However, you can also invest by buying an investment property, whether you plan to rent it out for a long time or repair it to sell it quickly. When comparing options for buying an investment property, read on for information that can help you make decisions.
Statistics and advice on investment properties 2022
- There are 19.95 million rental properties in the United States containing 48.2 million rental units, according to Census data.
- About 70% of rental properties are owned by individual investors, according to census estimates.
- For-profit corporations own about 18% of rental properties but 45% of all units, according to census estimates.
- Three-quarters (75.3%) of investment properties purchased in the fourth quarter of 2021 were paid for in cash, according to a analysis by Redfin.
- Lack of supply and rising prices are the two biggest challenges for residential real estate investors in 2022, according to a RealtyTrac Survey.
- About 34% of households live in rental accommodation, according to Census data. Forty-two percent of them live in single-family homes, while 36 percent live in apartments with five or more units. Nearly half (47%) of tenants are under 30 years old.
- The average monthly rent topped $2,000 in June 2022, according to Zillow.
- The most expensive rental market in the United States in June 2022 is San Jose, California, with a monthly rent of $3,361, according to Zillow. The cheapest is Youngstown, Ohio, at $960.
- Sixteen percent of tenants were behind on rent payments in May 2022, according to the National Equity Atlas.
While many headlines have focused on companies buying homes, the vast majority of real estate investors are much smaller operations, says Charles Tassell, chief operating officer of the National Real Estate Investors Association. Most members of the organization own between 14 and 40 units.
However, regardless of the number of properties in their portfolio, investors are watching closely for potential market developments.
“The uncertainty of the near future reminds a lot of people of that period between 2008 and 2010,” Tassell says. “Some investors determine how much leverage they can get while feeling comfortable. We are seeing a lot more people taking a more conservative approach.
No doubt about it: Earning passive income through investment property takes money and work.
“Any property that is not owner-occupied is considered riskier for a lender, as owners who occupy a property will tend to take care of upkeep and upkeep to a higher degree,” says Staci Titsworth, senior vice president of PNC Bank.
Generally, owners allow 1% of the value of the property for annual maintenance. So if your rental is valued at, say, $250,000, plan to spend $2,500 a year on maintenance.
Unlike a mortgage for an owner-occupied home, you will also need a large down payment, such as 15% or 20%, from your own accounts.
“The client must use their own funds for the down payment and cannot obtain donations, which are accepted for owner-occupied loans,” says Titsworth.
In addition, you will have to take into account the cost of a possible lack of tenants. Just under 6% of rental units were vacant in the first quarter of 2022, according to census figures.
If you’re considering buy-and-hold rather than fix-and-return (more on that below), consider whether you’d also opt for rent-to-own in the future.
“Rental-to-own can be very attractive to a more experienced investor looking to sell portions of their portfolio over time while minimizing taxes,” Tassell says, “providing both tax-efficient cash flow advantageous and an exit strategy from the properties”.
Real estate purchase and ownership statistics 2022
- Between June 2020 and June 2021, house prices appreciated by more than 18%, according to CoreLogic. Over the next year, however, appreciation is poised to slow significantly, with CoreLogic predicting a pullback to 4.3%.
- In 2022, three-bedroom, single-family home rental profits decline in 72% of U.S. counties, according to ATTOM Data Solutions.
- The average rent rose 14.8% year over year in June 2022, according to Zillow.
Instead of seeking immediate profit from a fix-and-flip property, many real estate investors choose to hold on to these homes, commonly referred to as a buy-and-hold investment. For example, an investor might buy a three-unit apartment building with plans to fill each house with tenants. Rather than selling it, the investor benefits from a steady stream of rental income, either from monthly tenants or short-term holiday guests. Ideally, the goal is for the property to generate income and also appreciate in value.
2022 Turnaround and Renovation Statistics
- More than 323,400 properties were returned in 2021, according to ATTOM Data Solutionswith 60 percent of those purchased with cash.
- According to ATTOM Data Solutions, it took the average investor 153 days, or about five months, to complete repair and reversal projects in 2021.
- The median gross profit on a flip in the fourth quarter of 2021 is $65,000, according to ATTOM Data Solutions.
If you’re considering flipping your investment property, be aware that it’s becoming increasingly difficult, especially with rising costs for renovation materials and labor, Tassell says. With this strategy, you will likely need to secure a bridge loan or other creative financing.
“Most investors actually work with hard money loans or their own capital before going to the bank after renovations and looking for a longer term loan to lock in and get their money back for the next project,” says Tassel.