Last week, I wrote an article about the resurging housing market. After five years, recent data indicates that we’re in the midst of a recovery. Many individuals are buying homes for their own housing needs, but a large number of investors are jumping into the market as well.

There are several ways investors looking for income can get into the market without taking on ownership of physical property. But before we discuss some real estate plays for investors, let’s take a deeper look at who’s buying real estate these days.

Profile of today’s homebuyer
Not surprisingly, many people who walked away from their homes in the mid-2000s have waited the requisite three to seven years until their credit has cleaned up and are now getting back into the housing market. And those individuals who hunkered down, sat out the mid-2000s, and saved their pennies for a more prudent down payment are also getting in.

But many individuals have circumstances — such as subpar credit or insufficient savings for a down payment — that simply don’t allow them to buy a home. Meanwhile, others have chosen to completely forgo the dream of homeownership. Renting is these folks’ only option, leaving a different breed of homebuyer to scoop up the limited inventory of single-family homes: investors. But, unlike 2005, when your brother-in-law bought a handful of homes with the intention of flipping them for a quick buck, these days it’s institutional investors buying droves of them as rentals.

As The Wall Street Journal reported last week, such large private equity firms as Blackstone Group have spent billions of dollars during the past year scooping up single-family homes. Blackstone is buying in excess of $100 million worth of homes each week and has forked over roughly $3.5 billion since early last year. Cash buyers — largely these types of investors — currently make up one-third of sales nationally. In fact, in Orange County, California, fewer than 10% of foreclosures went to investors at courthouse auctions in 2008. Last year, however, investors bought half of foreclosures at such fire sales in that county. 

An easier way
Instead of trying to beat these big-fish investors, how about getting into real estate a different way? REITs, or real estate investment trusts, are a way to invest in real estate minus the headaches that come with being a landlord. Not only do investors buy REITs for the potential share-price appreciation but they do so also for their current income.

REITs come in different flavors — mortgage and equity. Mortgage REITs carry inherent risks that long-term individual investors need to carefully consider before diving in. During the past five years, many mortgage REITs have cut their dividends many times and have issued substantial numbers of new shares to fund their business activities. They also borrow more to fund their operations than equity REITs, making mortgage REITs relatively vulnerable to rising interest rates. Understand the difference between these two before jumping …read more
Source: FULL ARTICLE at DailyFinance