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Real Estate Investor ReportReal Estate Investor Report2010 — 2011

EconohomesEconohomes

Turning properTies into possibiliTies

Econohomes Real Estate Investor Report 2010-11 1

Executive Summary 2Introduction 3Investor Demand 4Investor Preferences 6Online Habits 9Social Networking 10Demographics 11Summary 13About Econohomes 14

Table of Contents


We are pleased to present the first edition of the Econohomes Real Estate Investor Report. This report is the first of its kind to study the needs and characteristics of small investors buying distressed REO properties in the sub-$50,000 U.S. real estate market segment. It provides findings from our 2010 survey of more than 1,000 people who have purchased real estate from Econohomes or who have expressed interest in purchasing real estate from Econohomes.

Our overriding conclusion from this report is that small, local investors are a critical ingredient in the recipe to solve the housing crisis and stabilize the economy as a whole. These investors are the bridge to the future. Local investors are using their rehab skills and savings to profitably turn blighted properties into homes for those displaced by the recession. This cycle is providing needed local jobs, housing, and investment in communities across the country.

Key Findings• Vacant, deteriorating houses are turned

into homes: Investors are doing what the bank loan modifications and government incentives haven’t been able to do. They are creating homes from vacant, declining houses that blight neighborhoods. Using their own money, sweat-equity, and local resources, investors are improving and restoring these houses into occupied homes; all while providing a flow of new capital and jobs into some of the hardest hit communities. These investors make substantial improvements and then either resell the home to an owner occupier (sometimes with owner financing) or lease it to a renter.

• Scores of new, local investors: Demand is surging with thousands of new and part-time distressed property investors. They are overwhelmingly local, pouring needed capital and resources into their communities, and reducing widespread vacancies plaguing some of the hardest hit neighborhoods. With the help of these investors, those displaced by the recession can now

afford to rent, rebuild their credit, and eventually buy these homes from the investor. These investors are undoubtedly the bridge and backbone of this new housing economy.

• Plentiful opportunities for the masses: Millions of people fit the profile of these small, local investors – 36-55 years of age; self-employed or works part-time; making less than $100,000 in household income. There is a growing grassroots movement from these new, local investors. New investment businesses are established, self-employed income is generated, and new jobs for local contractors to improve these properties are created. We must support and encourage this rising movement to boost economic recovery even more. Education, training, tools, services and financing are imperative.

• Bulk buying – more hype than reality: Contrary to all the online chatter, most investors buy one property at a time within driving distances of their home. Very few are interested in buying in bulk, especially across state lines as most bulk packages are offered today.

• Property sourcing is highly fragmented: Investors are eagerly exploring alternative sources to search for and secure properties. More and more investors are comfortable with online sources for their real estate needs. Although Econohomes.com outpaces other sources, the goal is to make it a more robust hub with more services and online tools for these investors.

We would like to thank everyone who took the time to complete the survey and contribute to this report. We hope you find this report engaging and beneficial to understanding how investors are healing the residential housing market, one home at a time.

Executive Summary


Investors are the key to stabilizing the residential real estate market and the overall U.S. economy. Not Wall Street investors, but the thousands of small, local investors that are busily gobbling up distressed foreclosures, putting them back together and making them available to those displaced by the recession. We commissioned this study to better understand these investors: who they are, what they buy, how they buy, what they intend to do with their investment properties, and what tools, education and services could make them more successful. An interesting profile begins to emerge, but first a little background on why this is so important.

At its core, the housing market has a staggering supply and demand imbalance. Unfortunately, there is little demand from prospective homeowners and that trend likely will continue. Several powerful forces are conspiring to rapidly drive down the homeownership rate, including:

1. Persistent unemployment: The official unemployment rate (currently running at 9.4%) only includes unemployed people who have actively looked for work in the past 4 weeks and are currently available for work. It does not include: (1) people who have given up looking for work; (2) people working part-time; and (3) people working full-time but at lower wages. People falling into these categories represent a very significant percentage of the population, particularly in the hardest hit areas; and, many of them used to be homeowners and would like to be homeowners again, but lack the credit and financial resources.

2. Impaired personal balance sheets and credit: Nearly 3 million people have lost their homes to foreclosure, and 4 million people have filed for bankruptcy in the past 3 years. That eliminates a lot of housing demand. In addition, most people have had to tap in to their savings to survive prolonged periods of unemployment or underemployment.

3. Tight lending conditions: Banks can generate great profits by simply staying in the middle of the fairway. Their borrowing costs (largely what they pay us on deposits which right now is virtually nil) are very low, and they don’t have to take risk to generate very good credit spreads. As a

result, people with compromised credit can’t get a mortgage. Even someone with great credit will struggle to get a mortgage on a property that is in less than stellar condition. Hence a significant dilemma for banks holding foreclosures. Vacant properties tend to deteriorate. Distressed properties are not financeable, leaving a relatively small pool of cash buyers that are mostly investors.

While noble to aspire to get owner occupiers back into all of these vacant properties, it simply is unrealistic given the current economic conditions. Enter the small investor. Small investors are pouring into the market to fill the gap. They are bringing much needed skills, services and capital to help heal the housing market, and in the process are creating jobs and wealth for themselves and others. Based on our survey, the typical investor today:

• Improves and rents properties;

• Understands that good investment decisions usually depend more on the purchase price than the resale price;

• Buys locally, or at least within driving distance of their home;

• Is 36-55 years of age, self-employed or works part-time making less than $100,000 in household income; and,

• Is relatively inexperienced at real estate investing, but aspires to buy 5 or more properties over the next 3 years.

There’s a veritable army of people in the U.S. that match this description. This army can accomplish what government intervention has failed to do – acquire, rehabilitate, rent, and resell the tens of thousands of distressed REO properties in the market.

We hope you find this report useful. Please send your feedback to us by emailing [email protected]

Jeff Ball CEO/President Econohomes

Introduction

mailto:[email protected]


Scores of New Investors Drive DemandNew investors (39%) are driving demand. While only 20% consider themselves seasoned investors, nearly 40% of respondents are investing part-time (see figure #1). With more houses available for purchase at affordable prices, a growing number of individuals are venturing into this business to look for alternative ways to secure their future. These investors see a window of opportunity to invest now to turn these houses into homes and prosper with increased equity and cash flow.

Key Takeaways• New investors are providing much needed capital

and liquidity to the market.

• With most part-time, investors are striving to augment their income and/or retirement plan.

• Significant need for education, tools, services and financing to help these investors become successful.

Investor Demand

Figure #1 If you consider yourself an investor, are you one of the following?

(check all that apply)

New Investor

Seasoned Investor

Part-time Investor

Full-time Investor

Please note that respondents were able to select more than one answer and as a result the total will not add up to 100 percent.


Investor Demand

Robust Demand Promises Hope in a Fragile MarketAn overwhelming majority (75%) of survey respondents would like to purchase at least two properties over the next three years. And 41% would like to purchase five or more (see figure #2). This is great news for investors, communities, and the economy as a whole. Houses that sit vacant accumulate a myriad of problems that only escalate the longer they remain unoccupied. The faster we get these houses into the hands of investors, the sooner these houses are renovated and occupied as homes once again. Clearly, a lack of available renovation financing is a key constraint on the number of properties each investor can buy and improve.

Key Takeaways• Investors are a logical answer to help heal the

fragile housing market.

• Many investors would like to buy more properties if they could easily find good deals with available financing.

Figure #2 How many properties do you want to purchase over the next 3 years?

One

2-4

5 or more

Other

Bulk Purchases – Hype not RealityContrary to the hype, most investors buy properties locally, one at a time. Buying properties in bulk is not manageable with these packages largely comprised of properties located across multiple state boundaries (see figure #3).

Key Takeaways• Only one in ten investors are interested in multi-

state bulk packages.

• State-specific bulk packages would triple the potential buyer pool with 31% of investors interested in purchasing these state bulk packages.

• Banks and servicers would benefit from having an alternative distribution channel for sub-$50,000 REO properties that efficiently delivers properties to investors at attractive prices.

Figure #3 Are you interested in purchasing bulk packages

of 10 or more properties? (check all that apply)

Yes, same-state bulk packages

Yes, multi-state bulk packages

No



Local Investment is Decidedly the Leading ApproachThe overwhelming majority of survey respondents are local investors. Nearly 85% of respondents are interested in purchasing properties in their neighborhood or in the same city or area where they own property (see figure #4). This is not surprising considering that it is easier to locally manage the renovation and rental or resale of these properties.

Key Takeaways• Buyers are overwhelmingly local.

• Trusted service-provider networks (i.e. contractors, property managers, lenders) tend to be localized.

• There is an opportunity to enable investors to expand their investment geography by pairing a large inventory of investment properties available for purchase with a virtual network of trusted service providers by area.

Investor Preferences

Figure #4 Please select the locations where you would like to purchase additional properties:

(please select a maximum of three choices)

In my neighborhood.

In my state.

In another state but within driving distance.

In a neighborhood or city I used to live in.

In a neighborhood or city where I have family/friends.

In an area I am not personally familiar with.

In a city I have always wanted to own property.

Where I do business in this city.

25%

59%

47%

20%

12%

17%

8%

22%

13%

In my city/area.



Most Investors are Making Significant Improvements – Not FlippersThe vast majority of respondents (57%) intend to rent their properties with repairs, and 21% plan to rent without repairs. Interestingly, approximately 38% of the survey respondents also are using or intend to use the houses for personal use (see figure #6). In addition, one third of respondents intend to provide owner-financing to their buyers.

Key Takeaways• Most investors are renting their properties, rather

than immediately reselling after repairs. We believe this is a result of the small number of people who currently can qualify for a mortgage.

• Given tight mortgage lending conditions, some investors are offering owner financing to sell properties. For an investor, this shifts property management, maintenance and taxes to the buyer, but caps the investor potential upside from any future appreciation.

Figure #6 What is your intended strategy for purchasing property/properties?

(please check a maximum of three choices)

For personal use(including relative/friend use)

Rent (without repairs)

Rent (with repairs)

Re-sale for cash (without repairs)

Re-sale for cash (with repairs)

Re-sale with owner financing (without repairs)

Re-sale with owner financing (with repairs)

38%

21%

57%

25%

47%

10%

20%


Price and Location Trump ConditionPrice and location are far and away the most important factors to buyers in this real estate market segment. Condition is trailing as a distant fourth in importance (see figure #5). This implies that as long as the price and location of a property fit their criteria, buyers can handle condition issues either personally or with professional help.

Key Takeaways• Investors are willing to get their hands very dirty

provided the entry price is right.

• Investors realize they can put a house back together for much less than building a new home.

Figure #5 Please rank the following factors in order of most important (1)

to least important (8) when you consider purchasing properties:

Receiving clean title tothe property/properties

Location

Price

Condition

6.27%

6.10%

4.82%

4.71%

Status of the deed to the property/properties4.06%

Stability of market where property is located3.83%

Knowledge of market where property is located3.71%

Knowledge and reputation of seller3.54%



Retirement InvestingOne out of eight (13%) respondents use retirement funds to invest in these properties (see figure #8). Americans hold $16.6 trillion in retirement assets, including $4.5 trillion in IRA’s.

Key Takeaways• A meaningful number of investors (more than

10%) are using retirement funds to invest in real estate.

• Investors realize that high yielding investment properties are good candidates for tax advantaged retirement accounts.

Figure #8 Do you make real estate investments out of a self directed

retirement account (e.g. IRA, 401K)?

YES 13%

NO 68%

N/A 19%

Great Need for a Go-To Source of PropertiesMost of the survey respondents (61%) have purchased properties from another source outside of Econohomes – one in two utilize realtors (51%), one in five use auctions (20%), and one in four employ alternative channels, including wholesalers, bank-direct, and tax sales (18%) sources (see figure #7). Price was the biggest reason (62%) why respondents purchased from these alternative sources.

Key Takeaways• Today, investors have to search a variety of sources

to find properties that meet their investment criteria.

• Realtors know the investors, but generally cannot make a living selling sub-$50,000 distressed properties.

• Auctions are ineffective for selling sub-$50,000 distressed properties because due diligence costs tend to overwhelm potential returns.

Figure #7 What was the source(s) of your purchase (e.g. auction, tax sales, realtor, etc.)

outside of Econohomes?

Auction

Realtor

Bank

Private

Owner

Tax Sale

REO/Wholesaler

54%

20%

6%

6%

6%

7%

5%

HUD2%

MLS3%

Investor2%




Econohomes.com Far Outpaces Other Property SourcesMore than 80% of our survey respondents use Econohomes.com as their #1 source to purchase properties. The next closest source is Craigslist (57%) narrowly followed by real estate agents/companies (52%) as property sources (see figure #9).

Key Takeaways• Econohomes is the #1 property source in this

market for respondents.

• Sources for properties are highly fragmented, but Craigslist and agents are still key sources.

Online Habits

Figure #9 What resources do you use when you are looking to purchase a property?

(please check a maximum of five choices)

Craigslist

Econohomes

Referral from a friend

Banks, private equity firms

Real Estate Agents/Companies

RealtyTrac

Trulia

84%

57%

26%

22%

52%

13%

14%

Zillow28%

Newspaper ad24%

Sign on house33%

Fannie Mae, Freddie Mac, HUD22%

Auction30%

Flyers6%



Facebook Reigns #1 for Social NetworkingFacebook is by far the leading social network used by respondents (75%). LinkedIn is a trailing second with 36% of respondents using it as an online tool, followed by Twitter at 23% (see figure #10).

Key Takeaways• More and more investors are comfortable with

online sources.

• Investors expect more immediate access to information with the advent and growing usage of Facebook and Twitter.

• Low usage of LinkedIn strongly correlates with the high percentage of new, part-time investors.

Figure #10 What social networks do you use? (check all that apply)

Active Rain

Facebook

LinkedIn

Twitter

Other


Social Networking


Building Wealth across Demographic BoundariesOver two thirds of respondents (63%) have a total annual household income of less than $100,000 (see figure #11).

Key Takeaways• Approximately 50% of U.S. households have

annual household income of greater than $50,000. The potential universe of investors is enormous.

• If just 2% of this potential population buys 2 investment properties per year, that equates to more than $2 million renovated properties per year.

Demographics

Figure #11 What is your total household income?

Less than $10,000

$10,000 to $19,999

$20,000 to $29,999

$30,000 to $39,999

$40,000 to $49,999

$50,000 to $59,999

$60,000 to $69,999

$70,000 to $79,999

$80,000 to $89,999

$90,000 to $99,999

$100,000 to $149,999

$150,000 or more


Demographics

Nearly two thirds (59%) of survey respondents are between 36 and 55 years old (see figure #12) and over two thirds (63%) of all survey respondents are male (see figure #13). 44% of respondents are self-employed (see figure #14).

Key Takeaways• Almost two thirds of respondents are in their prime

earning years and are seeking alternative ways to meet their family obligations and secure their retirement.

• Given a lack of jobs in many regions, respondents are creating their own jobs by investing in distressed properties.

Figure #12 What is your age?

Less than 25

26 to 35

36 to 45

46 to 55

55 or older

Figure #13 Are you male or female?

Male 63%

Female37%

Figure #14 What is your employment status?

Employee of a not-for-profit, tax-exemptor charitable organization

Employee of a for-profit company or business or of an individual, for wages, salary or commissions

Government employee (city, county, state, federal )

Self-employed

Retired

28%

4%

8%

44%

7%

Homemaker3%

Out of work but not currently looking for work1%

Out of work and looking for work3%

Student2%


Local investors are vital to solving the housing crisis. They are rapidly buying vacant, deteriorated, REO properties and turning them into homes for those displaced by the recession. Scores of new investors are entering this business to improve their income that was destroyed by the down turn. Hard work and fortitude are creating a new cycle of homeownership, filling a void that government programs and banks haven’t been able to satisfy.

Millions fit the investor profile and can become investors themselves with the right set of tools, training and services to support them. Access to resources will help investors – new and seasoned; part-time and full-time – become even more successful.

There is a plethora of information and fragmented sources available, but there is no single hub that provides trusted services, rich information, education, and automated processes for residential REO investors. Investors will be better equipped to realize their financial goals through purchasing properties with these types of services in place. Econohomes is poised to become this robust center.

Summary

About the StudyEconohomes surveyed more than 17,000 individuals across the country that have either purchased properties from Econohomes or expressed interest to purchase properties. More than 1,000 investors responded.

This Real Estate Investors Report examines residential real estate purchasing needs of investors, including the most important factors in purchasing properties, sources to purchase properties, and the intended investment strategies for these properties. The report also analyzes current trends in web and online communications.

We hope that the data points provided by this report – together with our experts’ opinions – will help you gain a better understanding of the current trends in real estate investment across the country.


About Econohomes

Econohomes unlocks the enormous potential of distressed properties for buyers, sellers, and communities. With hundreds of properties offered in more than 39 states and a proven track record of acquiring thousands of properties since 2005, Econohomes is the alternative pipeline for distressed properties. Econohomes buys residential properties in volume at discounted prices from mortgage lenders and servicers, and almost instantly makes these properties available online to buyers at affordable prices. Econohomes owns the properties it sells, offering great deals, an easy closing process, and short-term investor financing. All backed by a full-service, in-house team of real estate experts for the best customer service before and after the sale. Econohomes is the leading online source for wholesale investment properties.

Econohomes is headquartered in Austin, Texas, and is a proud member of the Texas Better Business Bureau with an A rating.

More information about Econohomes is available at http://www.econohomes.com

Copyright® 2011 Econohomes. All rights reserved. No part of this document may be modified, deleted, or expanded by any process without prior written permission from Econohomes.

Thank YouWe would like to extend a special thanks to all of the individuals who participated in our Real Estate Investor Report.

ContactsWe value your comments and ideas. Please send your questions or feedback concerning the 2010-2011 Econohomes Real Estate Investor Report by emailing [email protected]

Amy HasbrouckEconohomes Vice President of Marketing

Turning properTies into possibiliTies

http://www.econohomes.com

mailto:[email protected]

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