Private Investor Holding Period

Brown, Roger J.; Geurts, Tom G.

doi:10.1080/10835547.2005.12089716

Cited by 16 publications

(14 citation statements)

References 16 publications

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“…This parallels a finding in Brown and Geurts (2005) that the average ex post holding period of small residential income‐property investors is just under five years.…”

supporting

confidence: 82%

House Search Duration in Hot and Cold Residential Markets

Chernobai¹,

Hossain²

2012

Real Estate Economics

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This study analyzes the determinants of house search duration of consumption‐driven buyers and individual investors in different housing market environments. We use data from surveys of recent house‐buyers in “hot” and “cold” housing markets in the 2000s housing bubble in California characterized by rising and declining residential house prices, respectively. The average house price and the surveyed geographical area are the same for both periods. Expected house ownership horizon is shown to be an important determinant of the realized search duration in addition to commonly considered housing and buyer characteristics. We find a statistically significant positive effect of it on the time until purchase in both housing price environments for consumption‐driven buyers. We also find that consumption‐driven house purchases were highly pronounced in coastal areas in the hot market and inland areas in the cold market. In contrast, long‐horizon investment activity leads that of consumption activity in those areas. Short‐horizon investors, on the other hand, concentrated their house search activity in inland areas in both housing market environments.

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“…This parallels a finding in Brown and Geurts (2005) that the average ex post holding period of small residential income‐property investors is just under five years.…”

supporting

confidence: 82%

House Search Duration in Hot and Cold Residential Markets

Chernobai¹,

Hossain²

2012

Real Estate Economics

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“…In particular, note that is a decreasing function of the initial price and of the difference between the index return and the growth rate of the free cash flows. This latter property was empirically observed by Brown and Geurts (2005). It means that investors sell property 7 The PER is defined as the initial price of a property or group of properties divided by the free cash flows produced by this or these properties.…”

Section: Computation With the Linear Utility Functionmentioning

confidence: 98%

“…Hendershott and Ling (1984), Gau and Wang (1994) or Fisher and Young (2000) show that, for the US, the holding durations depend mainly on tax laws. Brown and Geurts (2005) show the average holding period is around 5 years through a sample of small residential investments over the period in San Diego. They conclude that investors sell their assets earlier when values rise faster than rents.…”

Section: Introductionmentioning

confidence: 99%

Real estate investment: Market volatility and optimal holding period under risk aversion

2016

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This paper deals with real estate portfolio optimization when investors are risk averse. In this framework, we examine an important decision making problem, namely the determination of the optimal time to sell a diversified real estate portfolio. The optimization problem corresponds to the maximization of a concave utility function defined on both the free cash flows and the terminal value of the portfolio. We determine several types of optimal times to sell and analyze their properties. We extend previous results, established for the quasi linear utility case, where investors are risk neutral. We consider four cases. In the first one, the investor knows the probability distribution of the real estate index. In the second one, the investor is perfectly informed about the real estate market dynamics. In the third case, the investor uses an intertemporal optimization approach which looks like an American option problem. Finally, the buy-and-hold strategy is considered. For these four cases, we analyze in particular how the solutions depend on the market volatility and we compare them with those of the quasi linear case. We show that the introduction of risk aversion allows to better account for the real estate market volatility. We also introduce the notion of compensating variation to better measure the impacts of both the risk aversion and the volatility.

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“…14 14 Numerous empirical studies suggest that the holding periods for real estate typically range from 5 to 7 years due to high transaction costs in real estate investment ( e.g., Collett, Lizieri and Ward 2003, Brown and Geurts 2005, Fisher and Young 2000). Collett et al (2003) found that the round‐trip real estate transaction cost is about 7% to 8%. …”

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confidence: 99%

Real Estate Returns and Risk with Heterogeneous Investors

Lin¹,

Liu²

2008

Real Estate Economics

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This article develops a theoretical framework and formulates a unified risk metric that integrates both real estate price risk and uncertainty of time on market (TOM). We demonstrate that real estate sellers with different degrees of financial distress face not only different marketing period risks, but also receive different return distributions upon successful sales. The major findings of this article can be summarized as follows. First, we show that real estate return and risk, which account for both price and TOM risk, are investor specific, varying over investors with different financial circumstances and holding periods. Second, the traditional valuation of real estate return and risk, which is based solely on the return distribution of a successful sale without considering the uncertainty of TOM and the investor's financial circumstances, underestimates real estate risk and exaggerates real estate return. Third, our empirical applications in both residential and commercial real estate markets show that the Sharpe ratio estimated by the traditional approach is seriously overstated-to the largest extent for investors with high financial distress. In addition, we find that, given the typical 5- to 7-year holding period for real estate, the Sharpe ratios estimated by integrating both price and TOM risk are much in line with the performance of financial assets. These findings can help to explain the apparent "risk-premium puzzle" in real estate. Copyright 2008 American Real Estate and Urban Economics Association

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Private Investor Holding Period

Cited by 16 publications

References 16 publications

House Search Duration in Hot and Cold Residential Markets

House Search Duration in Hot and Cold Residential Markets

Real estate investment: Market volatility and optimal holding period under risk aversion

Real Estate Returns and Risk with Heterogeneous Investors

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