Apologies to F. Scott Fitzgerald, but the big real estate investors are very different from you and me.
A comprehensive new survey by Realeflow shows exactly how different, as it gives an insight into who the big real estate investors are and what tools they use.
Real estate investors have been an outsized player in housing sales through 2013 and 2014, and this gives an idea of where they are getting financing, what their focus is and what tools they use.
“Our data shows that many of those who are at the top of their game have largely walked away from banks, and now rely on private lenders or their own capital,” the Realeflow report says. “Those outside of ‘The Leaders’ are still working with banks as well as hard money lenders, to augment funds they may not be able to access through private lenders or their own capital.”
The challenge for the 95% will be in breaking the cycle that continues their reliance on banks and hard money lenders, the report states.
The report, which can be read here, divides investors into two groups, the “Leaders” (the top 5%) and the “Pack,” and while Realeflow does have a product to offer investors that’s supposed to help them break out of the pack, the survey results are enlightening.
A Marathon Not a Sprint
48% of The Leaders fall into the 31-50 age range. Furthermore, 44% fall into the 50+ category. A whopping 93% of everyone else is 31 and over.
“These numbers show us that real estate investing is much more a marathon than a sprint. Those looking for a get rich quick scheme, may do better trying to design the next Flappy Bird app,” Realeflow’s report says. “While success can be achieved rapidly (months) true long term wealth often takes years to create.”
The Action is in Rehab
Rehabbing clocks is at the top spot for both The Leaders (53%) and The Pack (39%). Rehabbing offers, perhaps, the best opportunity to add value to a property and, therefore, net the most profit.
Click below to see the graph.
“Rehabbing is, however, the most capital intensive and risky, which is why so many investors begin (and often stay) with wholesaling, which is far less demanding on funds,” they conclude.
Stay on Leads
Real estate agents and word-of-mouth referrals still occupy the number one and two positions, remaining in line with investor tactics for generating seller leads. For buyer leads, 3rd party websites have pushed out direct mail to assume third place.
In general, buyer lead generation presents far less of a challenge to investors than seller lead generation in this current market.
Based on survey responses, generating buyer leads didn’t seem to represent a large constraint in their business. Investors are, however, looking for newer, cheaper ways to market their properties, including social media.
Auction or not to Auction?
Auction sites tend to be a newer marketing channel for finding properties and potentially selling inventory. It appears that both groups are going to consider them as a viable alternative in the future, while far more of The Leaders are having success right now.
Click below to see the graph.
“We predict that auction sites will become more popular as property inventory continues to increase on these sites. Auction sites will likely see a jump in usage amongst those investors who are most limited on time or who are looking for a consistent source of readily available deals,” they conclude.
Source of Investment Capital
Of all the questions posed on the survey, the responses to this funding question most clearly delineated the differences between The Leaders and The Pack. Most striking is that The Leaders almost never use banks to finance their investments, preferring to utilize their own capital or funds from private lenders.
“The move away from banks and hard money lenders enables those investors to move much more quickly on deals, using less expensive money. The challenge to the rest is how to make that same transition. The answer is once again, marketing,” they conclude. “Investors need to develop their brand in order to build confidence in private lenders. Investors also need to target private lenders in much the same way they would sellers, using regular communication and a consistent message that creates trust and mitigates potential risks in the eye of the lender.”