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Residential Real Estate Investments and Investor Characteristics

Author

Listed:
  • Walter D’Lima

    (Old Dominion University)

  • Paul Schultz

    (University of Notre Dame)

Abstract

We investigate the returns to individuals who invested in residential real estate over 1999–2015. Using purchase and sales prices, we measure returns on properties that were both bought and sold by an investor using annualized price appreciation. We find that investors outperform market indices. Real estate investors earn larger returns if they live near the investment property, buy without a mortgage, and have experience in real estate investing. These characteristics are associated with investors paying less, as a percentage of the assessed value, for the property. Investors earn smaller returns on houses that they live in than on other property. Since appreciation reflects expenditures on improvements, we study land and mobile home investments where returns are less likely to be affected by improvements and document similar results. Overall, we highlight the risk and returns of residential real estate investments by retail investors. In addition, this paper sheds light on the role of investors in the residential market.

Suggested Citation

  • Walter D’Lima & Paul Schultz, 2021. "Residential Real Estate Investments and Investor Characteristics," The Journal of Real Estate Finance and Economics, Springer, vol. 63(3), pages 354-393, October.
    • Handle: RePEc:kap:jrefec:v:63:y:2021:i:3:d:10.1007_s11146-020-09771-8
    DOI: 10.1007/s11146-020-09771-8
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    References listed on IDEAS

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    9. Marcus T. Allen & Jessica Rutherford & Ronald Rutherford & Abdullah Yavas, 2018. "Impact of Investors in Distressed Housing Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 56(4), pages 622-652, May.
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    Cited by:

    1. Akshita Singh & Shailendra Kumar & Utkarsh Goel & Amar Johri, 2023. "Behavioural biases in real estate investment: a literature review and future research agenda," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-17, December.
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    3. David M. Harrison & Michael J. Seiler & Liuming Yang, 2024. "The Impact of iBuyers on Housing Market Dynamics," The Journal of Real Estate Finance and Economics, Springer, vol. 68(3), pages 425-461, April.
    4. Arkadiusz Górski & Agnieszka Parkitna & Kamila Urbańska, 2021. "Identification of risks of investments into residential premises for rent in Poland," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 31(4), pages 53-68.

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