The U.S. real estate market has largely recovered -- but for advisors whose clients want to invest some of their assets in property, that rebound creates both opportunities and challenges.

As noted in Financial Planning's cover story on real estate's new rules, more expensive properties eat up more cash and can mean servicing a bigger loan. They occupy a bigger proportion of a less-diversified portfolio; and if prices increase faster than rents, the properties will return less cash, making the owner -- that is, your client -- more vulnerable to the financial hits of vacancy, maintenance costs and careless or destructive tenants.

Want to understand these clients a little better? A recent survey from the National Association of Realtors took a deep look at investment real estate buyers and identified several characteristics that set them apart. (Click here for a slideshow version.) -- Rachel F. Elson

1.  They're Looking for Income

The largest share by far of investment buyers purchased property for rental income; a distant second was because of low prices and the buyer found a good deal. Overall, investment buyers plan to hold on to the property for a median of five years.

Why They Bought

 

To generate rental income

37%

Low prices/good deal

17%

Potential for price appreciation

15%

For future retirement

10%

To use for vacations or as a personal/family retreat

8%

Low mortgage rates

7%

Other

6%

 

 

2. They Like Single-Family Homes

The greatest share by far of investment-home buyers typically bought a detached single-family home.

What They Buy

 

Detached single-family

61%

Townhouse or row house

12%

Condo/duplex in 2-4 unit bldg

9%

Condo/apartment in 5+ unit bldg

13%

Other

5%

 

3. They Prefer the Suburbs

Investors were most likely to buy in a suburban area, followed by an urban or central city, rural area and small town. Only a handful bought in a resort area. 

Location of Property

 

Small town

16%

Rural area

21%

Suburb/Subdivision

32%

Urban area/Central city

26%

Resort area

5%

4. They Stay Close to Home

Where do investment-home buyers go shopping? The short answer: Not far. Investment-home buyers bought properties that were a median distance of 24 miles from their primary residence.

Median Distance From Home (in Miles)

Investment property buyers

24

Vacation home buyers

200

 

 

5. They Vary by Region

The largest chunk of investment buyers last year purchased a property in the U.S. South.

Where's the Investment Property?

 

Northeast

17%

Midwest

20%

South

37%

West

26%

 

6. They're Not Ultrahigh Earners

Other than a spike in 2013, the median household income of investment-home buyers over the last few years has remained fairly constant and fairly modest, in the range of $85,000 to $90,000 a year. The 2013 spike was "likely the result of the elevated activity seen that year in cash buyers scooping up the remaining glut of distressed homes available," explains Adam DeSanctis, a spokesman on economic issues for the NAR.

Median Household Income

 

2010

$87,600

2011

$86,100

2012

$85,700

2013

$111,400

2014

$87,680

 

7. They Paid Less Last Year

After climbing for four years, the median sale price of U.S. investment property purchases slipped in 2014.

Median Sale Price

 

2010

$94,000

2011

$100,000

2012

$115,000

2013

$130,000

2014

$125,000

 

8. They're Repeat Shoppers

A majority of investment property buyers say they are very or somewhat likely to buy another investment property in the next two years.  

Will They Buy Again?

 

Very likely

24%

Somewhat likely

44%

Somewhat unlikely

12%

Very unlikely

12%

Don't know

8%