The concept of investing might make you think of buying and selling stocks and bonds. However, you can also invest by purchasing an investment property, whether you plan to rent it out for a long time or fix it up to sell for a quick profit. As you compare options to buy an investment property, read on for information that can help guide your decisions.
2022 investment property statistics and tips
- There are 19.95 million rental properties in the U.S. containing 48.2 million rental units, according to Census data.
- About 70 percent of rental properties are owned by individual investors, according to Census estimates.
- For-profit corporations own around 18 percent of rental properties, but 45 percent of all units, Census estimates show.
- Three-quarters (75.3 percent) of investment properties purchased in the fourth quarter of 2021 were paid for in all cash, according to an 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.
- Around 34 percent of households live in rental housing, according to Census data. Forty-two percent of those live in single-family homes, while 36 percent live in apartments with five or more units. Almost half (47 percent) of renters are under 30 years old.
- The average monthly rent surpassed $2,000 in June 2022, according to Zillow.
- The most expensive rental market in the U.S. as of June 2022 is San Jose, California, with a monthly rent of $3,361, according to Zillow. The least expensive is Youngstown, Ohio, at $960.
- Sixteen percent of renters were behind on rent payments as of May 2022, according to the National Equity Atlas.
While plenty of headlines have focused on corporations buying houses, 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 of the organization’s members own between 14 and 40 units.
Regardless of how many properties in their portfolio, though, investors are keeping a close eye on a potential shift in the market.
“The uncertainty of the near future reminds a lot of people of that period between 2008 and 2010,” says Tassell. “Some investors are determining how leveraged they can get while still feeling comfortable. We are seeing a lot more people take a more cautious approach.”
No question about it: Earning passive income through an investment property takes money and work.
“Any property that is not owner-occupied is considered more risky to a lender because homeowners that occupy a property will tend to care for the maintenance and upkeep to a higher degree,” says Staci Titsworth, senior vice president at PNC Bank.
Generally, property owners budget 1 percent of the property’s value for annual maintenance. So, if your rental is valued at $250,000, say, plan to spend $2,500 a year in upkeep.
Unlike a mortgage for an owner-occupied home, you’ll also need a sizable down payment, such as 15 percent or 20 percent, sourced from your own accounts.
“The client needs to utilize their own funds toward down payment and cannot obtain gift monies, which are accepted for owner-occupied loans,” says Titsworth.
Additionally, you’ll need to factor in the cost of a potential for a gap in tenants. Just under 6 percent of rental units were vacant as of the first quarter of 2022, according to Census figures.
If you plan to buy and hold versus fix and flip (more information on that below), consider whether you’d go the rent-to-own route in the future, as well.
“Rent-to-owns can be really good for a more senior investor looking to sell off parts of their portfolio over time while minimizing taxes,” says Tassell, “providing both tax-beneficial cash flow and an exit strategy from the properties.”
2022 buy and hold real estate statistics
- Between June 2020 and June 2021, home prices appreciated by more than 18 percent, according to CoreLogic. Over the next year, however, appreciation is poised to slow dramatically, with CoreLogic forecasting a pullback to 4.3 percent.
- In 2022, profits on three-bedroom, single-family home rentals are decreasing in 72 percent of counties in the U.S., according to ATTOM Data Solutions.
- The average rent rose by 14.8 percent year-over-year as of June 2022, according to Zillow.
Instead of looking for an immediate profit from a fix-and-flip property, many real estate investors opt to keep those homes, commonly referred to as buy-and-hold investing. For example, an investor might buy a three-unit building with plans to fill each home with tenants. Rather than selling it, the investor benefits from a a steady stream of rental income, either from monthly tenants or short-term vacation guests. Ideally, the goal is to have the property generate income and also appreciate in value.
2022 flipping and renovation statistics
- More than 323,400 properties were flipped in 2021, according to ATTOM Data Solutions, with 60 percent of those purchased with all cash.
- It took the average investor 153 days, or about five months, to complete fix-and-flip projects in 2021, according to ATTOM Data Solutions.
- The median gross profit on a flip as of the fourth quarter of 2021 is $65,000, according to ATTOM Data Solutions.
If you plan to flip your investment property, know that it’s getting increasingly challenging, particularly due to rising costs of renovation materials and labor, says Tassell. With this strategy, you’ll likely need to obtain a bridge loan or some other creative financing.
“Most investors are actually working with hard money loans or their own capital before going to the bank after renovations and seeking a longer-term loan to lock in, and get their cash back, for the next project,” says Tassell.
Investment property FAQ