Residential Property as a Growing Checkbook IRA Investment
Checkbook IRA investments now include a rising number of single-family residential, or SFR, real estate. Historically, these properties have been the focus of individual investors versus the larger investor class.
Larger investors vs. individual investors
In the past, institutions such as banks, REITs, insurance companies, hedge funds, and mutual funds focused on the acquisition of larger assets. With a larger amount of overhead due to brick and mortar, labor, research, marketing and due diligence costs, these institutional investors needed to invest a larger sum of money to lower the ratio of overhead per investment. This led them to focus on the acquisition of larger assets such as industrial, retail, office, and apartment real estate. For an institution needing to invest $500 million, for example, it made more sense to focus on 25 large assets versus 5,000 single-family residences.
But the recent economic decline has made single-family residences a coveted asset among the larger investor class. Warren Buffet recently stated, “If there was a way I could buy a couple hundred thousand single family homes, I would be loading up on them.” Both individual and institutional investors are looking to raise returns while mitigating risks.
Checkbook IRA investment value
This opens up the potential of residential properties as a Checkbook IRA investment. Single-family residences have more investment value today than ever before, and market conditions have generated increased demand. The Housing Affordability Index, documented by the National Association of Realtors’® composite, reached a record high of 205.9 in the first quarter of 2012. This is the first time since 1970 that it broke 200.
And even though housing prices have stabilized in most metropolitan markets, there are currently 11.1 million residential properties (22.8 percent of households nationwide) under water, with 5.5 million of them 30 days or more delinquent, according to CoreLogic. This has created the perfect recipe for investors: a large supply of newly built homes, in highly desirable neighborhoods, combined with a growing number of high-quality tenants who were once homeowners, but who are now unable to qualify for mortgages and are looking to rent.
Until recently, single-family residential properties were left to the individual investor, while institutions focused on much larger pieces of property. Now these properties are an option for both.