According to the survey above 28.1 million American’s currently own an investment property and 7 million of them consider themselves active investors with plans to purchase in the next 12 months (please keep in mind the survey was done in 2012). If investors plan to spend a median of $7,500 on 1.2million properties then investors will spend $9.2 Billion on rehab costs per year.
These are great stats but what are investors spending on tools, closing costs and service providers to close these deals?
Well let’s start from the top and go from there:
If you start with GDP, Real Estate is 12.6% or $1.926 Trillion of the total $15.685 Trillion GDP.
Residential real estate sales end up being about 38% of all real estate totaling $729 Billion.
24% or $175 Billion of all residential real estate is investing.
There are a lot of dollars made off of that $175 Billion!
At the top of the list, according to RealtyTrac, are investors – with an average profit of $18,391 per sale. (Not all properties are flips but if they were, investors would be earning 13%, or $22 Billion of the pie.)
According to the above survey from our friends at BiggerPockets, next on the list would be contractors with $9.2 Billion of the pie. (we did not include in our graph)
Then of course real estate brokers and agents earning an estimated 5-6% of the pie at $8.75-$10.5 Billion.
According to NAR the ratio of investors using financing to all cash is about 50/50. Mortgage Brokers, Lenders and Servicers are next on the list with at an estimated 3-4% of $87.5 Billion. I know this seems high but 3-4 points includes origination, gain on sale (GOS), service release premium (SRP), servicing, etc. In fact this is quite conservative at $2.62-$3.5 Billion.
Closing costs from service providers (appraisal, inspection, escrow, title, etc.) we estimate to be 1.5-2.0%, or $2.6-$3.5 Billion.
How much do real estate professionals (agents, brokers, mortgage providers) spend on online marketing?
Well according to the 2012 Real Estate Advertising Outlook report by Borrell Associates this year, 55% of all real estate advertising, or $13 billion, will be spent on online media. Total advertising equals $23.7 Billion.
Does that mean if 24% of the business is from investors that real estate professionals will spend 24% or $3.12 Billion on online advertising? If real estate professionals who work with investors spend a total of $5.69 Billion we’d be surprised. I would estimate the number to be more like $3.4-$4.2 with $1.87-$2.3 Billion of that spent online to target investors. (not a bad number and we hope we can carve out a nice slice of that pie by connecting investors to real estate professionals)
24% of the residential real estate market is a big slice of the pie and $175 Billion is a big number and can’t be ignored. We believe the numbers will continue to grow as more investors are able to qualify to buy again. The first wave of foreclosures occurred in 2007. The seven year waiting period will be up for many “re-investors” starting in 2014. Will they make better decisions this time around?