Characteristics of Rental Real Estate Investors During the 2000s

Abstract

Using data from the 2001, 2004, and 2008 panels of the Survey of Income and Program Participation (SIPP), this research examines the characteristics of households that invested in rental real estate during the 2000s. Given the tumultuous real estate market during that decade, rental real estate investment was investigated during the early part of the housing market boom (2001), the height of the boom (2004), and after the market began to decline (2008). Results reveal relative stability with slight investment increases in rental real estate (4.57% in 2001 to 5.00% in 2004 to 5.08% in 2008), and several investor demographic and financial characteristics consistently associated with the investment decision. Evidence of potential over-reliance on real estate investment by some households indicates that financial planners should work to educate clients who invest, or are seeking to invest, in real estate. Education would emphasize that overweighting portfolios with real estate could be deleterious to client’s wealth goals in times of slow rental or depreciating housing markets.

Advisor compensation

“…However, more research is required to understand how clients choose between compensation models. A first step in understanding how client preferences influence advisor selection was provided by Seay et al (2017), who analyzed bivariate statistics of clients that used each compensation model. Results indicated that commission-only clients were mostly older (65 and over), relatively financially knowledgeable and confident in their knowledge about finances, and were comfortable with their decision-making as it related to investments.…”

“…Commission-and-fee clients were relatively younger (specifically, age 18 -34), more racially diverse and were full-time workers (Seay et al, 2017). They reported the highest levels of concern about fraud and were the most likely group of clients to perform a background check on their advisor, yet they believed the fees they paid were reasonable.…”

“…Lastly, fee-only clients were the largest group of clients, had high incomes, were financially knowledgeable but were not confident in their investment decision-making and also reported the lowest subjective financial knowledge of all client groups (Seay et al, 2017). Fee-only clients were interested in working with an advisor with a professional designation, wanted to delegate decisions to their advisor, and utilized an advisor to free up their time.…”

One and the Same? A Systematic Literature Review of Residential Property Investor Types

“…Only a few articles address the disposition of these individual investors in terms of age, gender, and wealth (Duxbury et al 2015). In the United States, the characteristics of rental property owners remained relatively consistent during the 2000s: investors are mostly white and Asian homeowners, married individuals and households without children, in good health, and with a high net income and educational levels (Seay et al 2018). Tax incentives and the potential for high returns attract novice investors to this category, even though there may be risks involved (Seay et al 2018).…”

“…In the United States, the characteristics of rental property owners remained relatively consistent during the 2000s: investors are mostly white and Asian homeowners, married individuals and households without children, in good health, and with a high net income and educational levels (Seay et al 2018). Tax incentives and the potential for high returns attract novice investors to this category, even though there may be risks involved (Seay et al 2018). As a consequence, "smallscale, non-professional housing investors" (Goldstein 2018(Goldstein , 1111 and "amateur investors" are increasingly involved in housing speculation (Allon and Barrett 2018).…”