2021 Self-Directed Real Estate Market Report: Where and How Equity Trust Clients are Investing in Real Estate

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1 2021 Self-Directed Real Estate Market Report: Where and How Equity Trust Clients are Investing in Real Estate

2 2021 Self-Directed Real Estate Market Report There s no question 2020 was unprecedented in many ways. As with everyone else, the pandemic profoundly affected our clients. Uncertainty brought much of the economy to a standstill. Gradually, investors got out there again, including IRA investors who are growing their retirement by infusing capital into the U.S. real estate market. The 2021 Self-Directed Real Estate Market Report shows how and where our industrious clients grew their wealth with real estate and what other investors can learn from them. In the report, you ll discover: States with the highest and lowest purchase prices in 2020 Hottest markets for out-of-state buyers Whether investors prefer rehabs, rentals, or flips as their go-to strategy Much More In some cases, you ll find data going back as many as 13 years to provide a fuller picture of self-directed real estate investing trends and help you prepare for what s to come. Real Estate Investing in Your IRA Ready to learn more about how self-directed investing could fit into your retirement planning? Visit try.trustetc.com/consultation or call to request a one-on-one session with a Senior Account Executive. About This Report The data in the Self-Directed Real Estate Market Report was aggregated from information provided by Equity Trust clients as of December 31, Where noted, the data spans from The information is intended for educational purposes only.

3 Contents 2021 Self-Directed Real Estate Market Report 2 Real Estate Purchases by Month: 2020 vs. Past Years 4 Client Real Estate Purchases in Real Estate Purchases by Region: 10-Year Trend 6 Where are Equity Trust Investors Purchasing Real Estate? 7 Where are Equity Trust Investors Purchasing Real Estate? 10 Out-Of-State Real Estate Investing 11 Out-of-State Real Estate Purchases Real Estate Strategies by Region 13 Purchase Price by Region 14 Purchase Price per State - Top Purchase Price per State - Bottom Average Purchase Price 13-Year Trend 21 Partnering to Purchase Real Estate 22 Notes Secured by Real Estate 23 About Equity Trust Company 24

4 Real Estate Purchases by Month: 2020 vs. Past Years 2020: A Year Unlike Any Other It may not be surprising that Equity Trust investors made fewer real estate purchases in 2020 overall compared to past years. It is particularly striking to see how activity dipped from March through May, during the height of the pandemic. And yet, by the end of the year, purchase activity surpassed the 2018 level. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

5 Client Real Estate Purchases in 2020 By Region Nearly half of Equity Trust clients real estate purchases took place in the Southern United States in WEST 17% MIDWEST 27% NORTHEAST 9% Compared to 2019, the Midwest and South showed slight decreases while the West s share of activity increased 3 percent. SOUTH 47% 5

6 Real Estate Purchases by Region: 10-Year Trend Midwest 25% Midwest 25% Midwest 26% Midwest 26% Midwest 27% Midwest 29% Midwest 25% Midwest 27% Midwest 28% Midwest 27% Northeast 7% Northeast 8% Northeast 8% Northeast 11% Northeast 11% Northeast 8% Northeast 9% Northeast 9% Northeast 9% Northeast 9% South 45% South 46% South 47% South 46% South 47% South 46% South 48% South 50% South 48% South 47% West 23% West 20% West 19% West 17% West 15% West 17% West 18% West 14% West 14% West 17%

7 Where are Equity Trust Investors Purchasing Real Estate? A Closer Look at the Top Three States Twelve percent of clients IRA real estate purchases in 2020 were in Florida. Florida Case study: Teacher Grows Portfolio, Creates Memories with Florida Vacation Rental Read Now 7

8 Where are Equity Trust Investors Purchasing Real Estate? Ten percent of clients IRA real estate purchases in 2020 were in Ohio. Ohio Closer look: Wall Street Journal Shines Light on Self- Directed Real Estate Investors and a Fix-and- Flip Hot Spot Read Now 8

9 Where are Equity Trust Investors Purchasing Real Estate? Eight percent of clients IRA real estate purchases in 2020 were in Texas. Texas Case study: Alan from Texas shows it s never too late to begin self-directed investing Read Now 9

10 Where are Equity Trust Investors Purchasing Real Estate? Top 10 States - Percentage of All Client Purchases in 2020 Volume of Purchases by State These states are where the most real estate transactions took place in our clients accounts in New this year: Tennessee places in the top 10, edging out New York, which had been in the top 10 the previous two years. California 7% Tennessee 3% Indiana 5% Michigan 5% Ohio 10% Texas 8% Georgia 5% S. Carolina 3% N. Carolina 6% Florida 12% 10

11 Out-Of-State Real Estate Investing Percentage of Properties in Each State Purchased by Non-Residents Some Equity Trust self-directed real estate investors who are priced out of their local market or have knowledge of other markets in the country find success investing in rentals or fix-and-flips outside their home state. CA 39% OR 30% WA 17% NV 55% ID 65% AZ 46% UT 24% MT 42% WY 33% NM 61% CO 32% ND 0% SD 0% NE 50% KS 37% OK 34% MN 23% IA 8% MO 29% AR 33% WI 21% IL 26% MS 43% IN 35% TN 15% MI 21% AL 43% KY 13% OH 10% GA 26% WV 63% SC 30% VT 100% PA 17% VA 18% NC 18% NY 13% NH 67% ME 50% NJ 24% DE 33% MD 22% MA 40% RI 40% CT 18% How does this compare to the trend over time? See the next page for out-of-state purchases over the past five years combined. AK 0% HI 0% TX 9% LA 15% FL 31% 11

12 Out-of-State Real Estate Purchases Real-Life Real Estate: Long-Distance Investing These maps show that not only is it possible to buy investment properties outside of your home state, but many investors are using this approach. Here are case studies illustrating how two clients navigated the investment from out-of-town. Michigan resident Arnold purchases a beach house in South Carolina Laurel of Colorado purchases condos in North Carolina OR 24% WA 16% NV 62% ID 44% AZ 42% MT 50% WY 60% UT 32% CO CA 34% KS MO 22% KY 53% 36% 23% NM 50% ND 100% SD 50% NE 0% OK 17% MN 22% IA 26% AR 21% WI 32% IL 31% MS 36% IN 47% TN 26% MI 18% AL 34% OH 22% GA 19% WV 67% SC 29% VT 100% PA 25% VA 20% NC 14% NY 12% NH 9% ME 14% NJ 26% DE 43% MD 26% MA 0% CT 8% RI 9% *Based on percentage of investment purchases TX 9% LA 13% FL 25% 12

13 Midwest Northeast Real Estate Strategies by Region RENTAL PROPERTY 75% RENTAL PROPERTY 70% What are clients doing with their investment properties? BUY & HOLD 19% BUY & HOLD 23% In all regions, a majority of clients are renting their investment properties, receiving cash flow to their IRAs or other accounts. By using their IRA, these investors receive an added benefit: gains are not taxed when held in a retirement account *A flipped property is defined as a property held for less than 1 year RENTAL PROPERTY West 78% FLIPPED PROPERTY 6% South RENTAL PROPERTY 68% FLIPPED PROPERTY 7% BUY & HOLD 19% BUY & HOLD 24% FLIPPED PROPERTY 3% FLIPPED PROPERTY 8% 13

14 Purchase Price by Region 14

15 Northeast Average Purchase Price $116,000 Median Purchase Price $65,000 Average Purchase Price Median Purchase Price Rental Property $100,000 $71,000 Flipped Property Buy & Hold Property $75,000 $45,000 $140,000 $65,000 15

16 Midwest Average Purchase Price $65,000 Median Purchase Price $45,000 Average Purchase Price Median Purchase Price Rental Property $61,000 $46,000 Flipped Property Buy & Hold Property $66,000 $47,000 $68,000 $44,000 16

17 South Average Purchase Price $107,000 Median Purchase Price $69,000 Average Purchase Price Median Purchase Price Rental Property $119,000 $91,000 Flipped Property Buy & Hold Property $99,000 $63,000 $95,000 $51,000 17

18 West Average Purchase Price $123,000 Median Purchase Price $59,000 Average Purchase Price Median Purchase Price Rental Property $145,000 $72,000 Flipped Property Buy & Hold Property $114,000 $71,000 $87,000 $41,000 18

19 Purchase Price per State Where did clients pay the most for properties in 2020? Top 10 States State Median 2020 Purchase Hawaii $337,000 Washington $178,000 Montana $164,000 Utah $160,000 Nevada $149,000 Oregon $128,000 Rhode Island $127,000 Delaware $114,000 Connecticut $101,900 South Dakota $101,800 19

20 Purchase Price per State Where did clients pay the least for properties in 2020? These median purchase prices show it doesn t take a six-figure retirement account balance to get started in selfdirected real estate investing. Read: How a Self-Directed IRA Can Help You Beat the Competition in Real Estate Investing Curious about real estate investing concepts that don t require a lot of capital? Check out this video: Investing in Wholesale Properties and Real Estate Options with a Self-Directed IRA Bottom 10 States State Median 2020 Purchase Vermont $4,200 District of Columbia $16,400 California $26,000 Arkansas $27,500 Oklahoma $31,600 Missouri $34,400 Louisiana $35,000 Kansas $37,800 Pennsylvania $40,000 Ohio $40,400 20

21 Average Purchase Price by Year Average Purchase Price 13-Year Trend Despite the challenges of 2020 and fewer real estate purchases, real estate prices continued to trend upward. How This Compares to National Trends The picture of overall real estate prices in the U.S. shows an even stronger picture: The median home price increased 12.8 percent in 2020, according to ATTOM Data Solutions. This increase outpaced combined increases of 4.4 percent in 2019 and 4.8 percent in This was the largest annual increase since at least 2006, according to the firm. $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20, % 15.9% 0.1% 8.5% 9.1% 11.5% 0.3% 2.9% 6.3% 13.3% 4.3% 6.1% $

22 Partnering to Purchase Real Estate For various reasons - not enough capital, not wanting to tie up too much of their account balance - many clients turn to partnering to make an investment. In 2020, more clients turned to their own household s accounts to partner: 34 percent of those partnering did so with in-household accounts, vs. 15 percent in It s possible to partner any combination of Equity Trust accounts, within the same household or not - two IRAs, an IRA and a CESA, etc. While some partnered three or four accounts for their investment, the majority co-invested with two accounts. Non-Household: 66% Household: 34% Partnering: Household vs. Non-Household Accounts 3 Accounts: 7% 2 Accounts: 82% 4 Accounts: 11% Number of Accounts Partnering for Investment 22

23 Note Interest Rates Notes Secured by Real Estate A more hands-off approach to real estate is loaning money to other real estate investors, also known as note investing. Here s a look at the percentage of returns our clients receive from their note investments. Overall Median Note Purchase Price in 2020: $60,000 Interest Rates Percentage of All Notes Secured by Real Estate Under 3% 2% 3% - 5% 2% 5% - 7% 6% 7% - 10% 23% 10%+ 67% Represents notes purchased from

24 About Equity Trust Company One mission: to inspire, educate, and support investors to achieve more. Nearly 400 employees dedicated to client success 45+ years in the financial services industry $30.1 billion in assets under custody (as of 3/31/21) 181,000+ accounts under custody 10 minutes or less to initiate an investment on online account management tool myequity Discover how you could use your retirement account to invest in real estate START A CONVERSATION Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional. ET Equity Trust. All Rights Reserved. 24