With so many single-family distressed homes out there on the market, real estate investors are aware of the need to choose carefully which homes to buy – and it's more than just the house itself that figures into the equation when buyers are making that determination.
A panel of real estate buyers convened to discuss this issue and more during the "Hot Spots: Where to Invest and Buy Real Estate" section of the Investment Lab at the Five Star Conference on September 16.
Everything must be carefully considered when deciding what properties to buy, the panel concluded. Investors must not only evaluate the properties but must also be critical forward thinkers in order to determine which homes and/or markets have the greatest opportunity to appreciate – and they must avoid buying in those markets that are likely to decline.
The conditions of the area around the home are usually a good indicator of whether the house – and the neighborhood – will appreciate or depreciate in value in the years to come.
"We drive by and look at the houses and the surrounding area. We don't buy anything we haven't looked at," said Heidi Coppola, SVP for strategic initiatives at Key Property Services. "We look at the schools in the area, the crime rate, how the other houses in the neighborhood are taken care of and how cars are maintained."
Investors must also predict whether the borrower is likely to stay in the home for a lengthy period of time, which would be necessary for the house to be a sound investment.
"A family with one or two kids that is looking to grow is going to move out of a one or two bedroom house pretty quickly," said panelist Eric Workman, president of Investability.
The mortgage crisis of 2008 has caused many would-be-homeowners to turn to renting because for one reason or another, they cannot obtain a mortgage loan.
"There are more rentals now because of the lack of available mortgage lending," said Allen Weiss, CEO of Weiss Residential Research. "It's a reaction to meltdown and recovery more than anything else."
The main reason for the lack of available mortgage loans is that lenders want to avoid a repeat of the aforementioned crisis, in which subprime lending played a significant role. Politicians and regulators have been calling for more low credit score mortgage loans recently in order to make the American Dream possible for a greater number of people, but Weiss does not believe that is the answer.
"I hope subprime lending never comes back," he said. "There are more sustainable alternatives. I think if subprime lending comes back, we are asking for another bust."