“Mom and pop investors” are trying to capitalize on a depressed real estate market in the hopes of one day being able to cash in. An article in USA Today highlights this new breed of small-scale investors who like to buy and hold properties, opposed to the high-dollar large investment firms that once dominated the real estate market who preferred to buy and flip their property investments.
For “mom and pop investors,” the strategy is to buy homes at rock-bottom prices, rent the properties out to cover all of the costs of home ownership for several years, and then one day sell the homes when prices recover.
“An unprecedented number of investors are looking into this,” John Burns, CEO OF John Burns Real Estate Consulting, told USA Today.
Investors purchased more than 26 percent of single-family and condos in 167 U.S. markets in the first nine months of last year, according to data supplied by Burns to USA Today.
For investors in the rental market, an 8 percent annual return is fairly normal, according to Burns. “That means that someone who buys a $100,000 property — and pays cash for it — makes $8,000 a year after expenses, including maintenance and taxes,” the USA Today article notes.
Of course, the threats of tenant and maintenance issues always has the potential to derail that potential profit, so investors need to be careful before jumping in, some experts warn.
Source: “Mom and Pop Investors Propping Up Home-Buying Market,” USA Today (Feb. 14, 2012)
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