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From single-family houses to apartment buildings and commercial properties, Entrust clients have a long history of investing in real estate to bolster and diversify their retirement savings portfolios. Our new 2018 Real Estate Investor Market Research Report offers analysis and insights into where and what kinds of transactions Entrust clients are making, and how the return on their investments is adding value to their Real Estate IRAs. The report also looks at broader real estate market trends, and provides real estate and financial professionals, insights to help them grow their business.
More than 70% of the properties bought—and 64% of those sold—by Entrust clients in 2017 were single- and multi-family residences. While some investors buy properties to renovate and resell them (just one of several examples included in the report), most use their real estate investments to generate rental income in a tax-advantaged IRA. This strategy plays well in the current period of rapid growth in both the number of renters and the amount of rent they pay, as measured by Harvard University’s Joint Center for Housing Studies.
State-by-State Purchase Analysis
The number of states where Entrust clients invest their Real Estate IRA assets keeps expanding. In 2017, states like Kansas, Idaho, and Illinois were added to the list. Purchases in Texas slipped, which allowed Florida to move into third place, after Arizona and California, the perennial leader. Along with Texas, 2017 purchases decreased in Arizona and Montana. They increased in Florida, Indiana (moving into fourth place), and Georgia.
State-by-State Sales Analysis
Three of the four top states for real estate purchases in 2017 were also among the top for sales. California, Arizona, and Florida took the top spots in both lists. Texas placed fourth in terms of sales. Given that these states have the most mature Real Estate IRA market among Entrust clients, these statistics are unsurprising. Overall, sales figures follow the pattern set in 2016.
Return on Investment
The South accounted for 27% of the sales made in 2017, and those sales led the nation in return on investment. In Florida, ROI averaged 58%, and in Georgia it averaged 41%. Return on investment continued strong in the West as well, averaging 23% in California and 15% in Colorado. In the West, Arizona was an outlier, with a mere 4% ROI. The Midwest is represented by Missouri, with an average ROI of 15%.
In 2017, commercial property investments made by Entrust clients increased nearly 4%. This tallies with statistics gathered by the National Association of Realtors® in its June 2017 Business Creation Index, which reported that more than half (58%) of the respondents noted an increase in the number of business openings. Every year, our clients find new localities to invest in. Last year, they added Kansas, Idaho, and Illinois to the list of states where they purchased investment property.
A Generational Look at Home Buyers/Sellers
While Real Estate IRA owners are buying and selling residential property for investment purposes, they are dealing in the same market as home buyers. The home buyer population ranges from Millennials (born 1980 to 2000), who are buying their first homes, and Generation Xers (born 1965 to 1980), who are hitting their stride as wage earners. Even Baby Boomers (born 1946 to 1964) continue to buy, often downsizing or moving to retirement locales, although they are more often active as sellers.
Three trends identified by PwC in its 2017 Emerging Trends in Real Estate – US and Canada report also hinge on generational factors:
- Housing shortage: Baby Boomers are staying in their houses longer, creating a housing shortage for Millennials and Gen Xers. This is creating opportunities for the development of new, smaller, more energy-efficient homes, townhouses, and condos.
- Multi-family residential demand: If they can’t buy, Millennials and Gen Xers turn to rentals. Demand for multi-family housing prospects remains strong, especially in secondary markets like Pittsburgh, Salt Lake City, and Fort Lauderdale.
- Senior housing momentum: The available inventory doesn’t come close to meeting the needs of a market segment projected to grow by 25 million in the next 15 years
Our 2018 Real Estate Investor Market Research report is an example of the priority we place on educating investors and the professionals—real estate agents, brokers, financial advisors, and others—This report’s detailed analysis of purchases and sales data, and comparisons to 2016 can help you understand the market and the potential to diversify your retirement savings portfolio with a Real Estate IRA.
Disclaimer: Before you invest in this business sector using your IRA, it is best to consult with your investment, legal and tax advisor. Entrust does not endorse or recommend any of these investments. Proper due diligence by you the IRA holder is recommended before entering into any transaction.