California Property Investors Shift to Niche Properties in 2016

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Fewer paying all cash, location tops main reason to buy
 
According to a new California Association of Realtors (C.A.R.) survey of its members about their interactions with real estate investors, more property investors are turning to niche properties and away from investing in single-family homes and multifamily properties than they have in recent years.
 
C.A.R.'s 2016 California Investor Survey found 10 percent of investors purchased commercial, land, mobile homes, or other types of properties in the past year, up from 7 percent in 2015 and 6.7 percent in 2014.

Given a lack of inventory of distressed homes on the market, the share of single-family homes being purchased by investors has been declining gradually since 2013. Seventy percent of investors purchased single-family homes in 2016, down from 78 percent in 2013.

The share of investors who purchased multifamily properties also declined slightly, dipping from 21 percent in 2015 to 19 percent in 2016.

Among the reasons investors cited for buying include good location (38 percent), followed by rate of return (30 percent), good price (17 percent), and future development potential (7 percent). 
 
Additional C.A.R.  2016 Investor Survey findings include:
 

• As real estate deals become increasingly harder to find, the investment climate in California has gotten more competitive. With the listing price and final sale price nearly equal, the number of days the property was on the market has declined, and a larger share of investment properties was located outside of the urban and suburban markets they previously dominated.

• With fewer available distressed properties, the share of equity transactions has increased steadily, rising from 70 percent in 2014 to 87 percent in 2016.

• Fewer investors (62 percent) are renting out their properties in 2016, compared to last year (65 percent).

• Twenty-six percent of investors are flipping their properties, unchanged from last year, but down from 28 percent in 2014. Twelve percent plan to leave the property vacant, use it as a vacation rental, or other use.

• More than three-fourths of investors remodeled their properties, and the median cost of the remodel increased from $10,000 in 2015 to $13,500 this year.

• As a sign of optimism, the vast majority (76 percent) of REALTORS® working with investors believed the property would increase in value in one year. This also applied to the long term with 71 percent saying the property would increase in value in five years.

• Investors in 2016 are planning to hold the property for longer--an average of 8.1 years, up from 6.1 years in 2015.

• While investors own fewer properties on average in 2016 (5.6), down from 6.4 in 2015 and 8.3 in 2014, a higher proportion of them own other properties. A record share of these other properties is located outside California (15 percent in other states and 2.4 percent in other countries).

• With higher real estate prices and more investors purchasing other properties within the past year, the share of investors who obtained financing jumped sharply from 34 percent in 2015 - where it had been holding steady for the past three years - to 45 percent in 2016.

• Conversely, fewer investors paid cash in 2016 (55 percent), compared to last year (66 percent). Investors cited personal savings (46 percent) as the primary source of cash funds, followed by proceeds from a previous investment (19 percent), and private investors (19 percent).