Rising Prices Encourage Fewer Investor Purchases, Longer Holding Times

Rising Prices Encourage Fewer Investor Purchases, Longer Holding Times

06/05/2013 BY: KRISTA FRANKS BROCK

A recent industry survey found rising home prices are impacting investor activity in a few ways—most notably encouraging them to hold properties longer and to decrease their purchase activity.

The survey, conducted by ORC International and released Wednesday by MemphisInvest.com and Premier Property Management Group, revealed more than half of investors plan to keep their investment properties for five years or more. One-third said they will keep their investment properties for at least 10 years.

Investors in these categories “realize the benefits of rising rents and low vacancy rates,” according to Chris Clothier, a partner at MemphisInvest.com and Premier Property Management Group.

“Cash flow is much more important than appreciation,” Clothier said.

Close to half—48 percent—of the investors surveyed in May said they will purchase fewer properties in the next 12 months than they did in the past year. This is up from 30 percent in the same survey conducted in August 2012.

Twenty percent of survey respondents said they will purchase more properties in the next 12 months than in the previous 12 months, down from 39 percent in the August survey.

Contributing to this trend, “[f]ewer foreclosures, rising property values and competition from hedge funds are making it tough to find good deals on distress sales,” Clothier said.

Rising prices are also affecting the method by which investors pay for their properties, according to Clothier.

Thirty-seven percent of investors said they will pay cash for their next property, up from almost 25 percent in the previous survey.

“Cash sales make sense when prices are rising. They lower investors’ costs,” Clothier said.

The increase in institutional investor activity may appear to be a hurdle for private investors, but the survey revealed a minority of investors—13 percent—have noticed an impact.

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