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Who’s Buying Houses? A Quick Look at Some Emerging Demographics

Who’s Buying Houses? A Quick Look at Some Emerging Demographics

It’s an age-old tale: A new customer comes into your store and you find out he’s renting an apartment nearby. A couple of years later, he’s in the store buying paint and fixtures for his starter home. Down the road, you notice he’s purchasing a little differently, investing in remodeling products or landscaping supplies. You then learn that he’s sold the starter home and upgraded to a larger home for his new family.

For a long time, that’s how retailers expected to follow their customers through the natural progression of home buying. But over the last decade, anecdotal evidence suggests that while today’s most common type of homebuyer is still the typical family, there are some emerging new demographics of homebuyers, too.

One good example is investors, who are choosing to put their money in real estate rather than the stock market. Some act as landlords and enjoy receiving a passive income each month, while others flip homes and gain profits from those sales.

And when it comes to owner-occupied homes, the number of single females buying homes has risen during the past few years.

The editors of Hardware Retailing decided to take a look at some common types of emerging homebuyer demographics to determine what these buyers are looking for in the houses they’re buying.

Read on to learn more about these new types of homebuyers, what they’re looking for when they come in to your stores and how you can service them best.

The House Flipper

According to a January 2014 report from RealtyTrac, there were more than 150,000 homes flipped—purchased by an investor, fixed up and sold within six months—in 2013. This number was up 16 percent from 2012 and 114 percent from 2011, showing that flipping homes has become a popular way to invest.

When home prices plummeted during the recession, flipping became a much less popular way to invest. Now that the recovery has begun and home prices are increasing, more investors are finding their way back into house flipping.

Seasoned house flippers (and the contractors with whom they work) often know exactly what materials they’re looking for to renovate these homes. Because they want to get the house sold as soon as possible to be free from mortgage payments, they likely have the work down to a science—some even may have pre-selected paint brands and colors, cabinet hardware and countertop materials.

While they may not be coming to your store to ask as many questions as, say, a first-time homeowner.  But, when it comes to flipping, time is money. So if you can figure out ways to make shopping more efficient such as remembering their preferences or having their frequent items on file, you’ll be more likely to create repeat customers.

New flippers may need more guidance. They may be unsure, for example, as to which type of carpet they should buy or if they should buy carpet at all. Asking them questions about the home’s location and fair market value will give you the information you need to help them make the best decisions.

Meet the Buyer

Justin Williams
San Clemente, Calif.
Owner of House Flipping HQ

investor - headshot

Most people purchase two, three or four houses in their lifetimes. In the past three years, Justin Williams has purchased—and sold—about 250 homes.

It’s all part of his job as a house flipper. Williams, owner of House Flipping HQ (houseflippinghq.com), buys a home below market value, renovates it and then resells it for a profit.

While many homebuyers want a turnkey property with a certain number of bedrooms or bathrooms, for Williams, who buys homes all over southern California, it’s mainly about the numbers.

“I will buy just about anything, as long as there’s a decent buyers’ pool for it,” he says. “I try not to have too many higher-end homes at any given time, because those come with higher risks.

“My goal is to get a 40-percent annualized return on the total amount of invested capital into any given project,” he says. “I look at purchase prices, the amount I think will need to be put in to repair costs and how quickly I think I can turn the house around—usually about four months, on average. I do adjust my offer price based on what kind of work the home needs.”

Williams has three general contractors who do the renovations, and he usually estimates his homes will need about $20 per square foot in repairs (up to $30 per square foot, if he’s using high-end finishes or doing bigger projects).

It varies, of course: “We have put as little as $500 and as much as $200,000 fixing up a house,” he says. “If you have a 1,500-square-foot house that needs just about everything, including flooring, paint, kitchen, bathrooms and fixtures, then you’re looking at a $30,000 rehab. If it needs windows, HVAC, a roof, pool equipment or anything major, you’d need to add to that.”

Williams and his contractors shop at a combination of big-box and independent stores. He’s been doing the work long enough that, unless it’s a completely custom project, he knows almost exactly what types of fixtures or flooring he’ll use in each of his homes.

“We have a list of SKUs we’ve put together for our contractors,” he says. “We’re looking for a combination of cost efficiency and high quality.”

For many of those SKUs, he goes to a big-box store. For more custom or higher-end products, his contractors shop at design outlets or independent stores. He goes to an independent wholesaler for wood laminate flooring and has another source for stainless steel appliances. “We buy about 10 appliance packages from them each month, and they include a dishwasher, stove and microwave,” Williams says.

“Along with good prices and quality of product, customer service and product knowledge, it’s huge for us to know the company will take care of our needs and share thoughts and input on what we are getting, if it is needed,” he says. “One of the greatest things is knowing you are a priority, especially when you have a high volume of business that you do.

“It creates that understanding that you can go somewhere and be sure you are always being taken care of,” he says.

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Because Williams buys homes all over southern California, he says it’s hard to nail down an average price he spends on a home, especially taking into account the difference between inland and coastal areas.

“It ranges from $75,000 to $150,000 in some areas and $150,000 to $300,000 in others,” he says. “As I get closer to the coastal areas or Palm Springs, the cost can be anywhere from $300,000 to almost $1 million.”

He says Multiple Listing Service inventory is low, so he’s finding new ways to buy homes, such as marketing directly to homeowners who may want to sell. He’s seeing more standard sales now, compared to more short sales and bank-owned properties a few years ago. “The market has gone up enough to allow fewer people to be underwater, so more can sell as an equity sell.”

Get the Business:
  • Consider offering a rebate program, as Paul Gabbard, owner of Malone Do it Best Lumber and Rental in Greenville, Ky. His program gives his pro customers a rebate based on their annual purchases at the end of each year, as long as they’ve kept their accounts up to date.
  • Sell projects rather than products. Ask the customers what projects they’re working on and offer special prices on bulk purchases. Gabbard offers pricing incentives, giving contractors a discount on materials if they buy a whole materials package from his store.
  • Many flippers have contractors they use regularly, and they’ll be the ones you’ll see in your store. Find a way to thank them for their business. Gabbard hosts a Christmas dinner for his pro customers, inviting 200 to 250 to dinner at a nearby church. He invites about 20 vendors, giving customers a chance to learn more about what the vendors offer while enjoying a holiday meal. “It’s a fun event that we’ve been doing for the past 15 or 20 years,” he says.

The Landlord

While some investors want to fix up and sell homes, others prefer to act as landlords and rent out the properties they buy.

Landlords are everywhere, and their jobs aren’t necessarily a full-time job anymore. Many landlords also work primary jobs in other fields. Some may have bought new homes and decided to rent out their old ones because they were having trouble selling it, while others may have little extra cash and decided to invest it in property rather than going the more traditional route of the stock market.

Low prices during the recession meant it was a good time to buy since properties were cheap and it was fairly easy to find renters, as there were many consumers who wanted to buy a home but didn’t have the down payment to do so. By renting homes, they still were able to have the space and backyards they wanted, even if they hadn’t bought the properties.

As with house flippers, landlords generally will know what products they’re looking for, often favoring mid-level finishes—although some will look for high-end products—and will tend to buy the same things over and over as they do the same projects at different properties. Unlike flippers, however, they’ll look for the occasional product here and there to maintain and repair their rental homes.

Meet the Buyer

Paul Rees
Indianapolis
Owner of Dawn Til Dusk Property Management

Rees headshot

As the president of his homeowners’ board of directors, Paul Rees was unhappy with the service he was receiving from the property management company in his neighborhood, so he took matters into his own hands.
To avoid a conflict of interest, Rees resigned from the board to form Dawn Til Dusk Property Management (dawntillduskco.com). He now manages 150 investment properties for out-of-state investors, as well as four communities.

But he’s more than a property manager. Rees is a landlord, too, who owns and rents out 12 homes in Indianapolis.

The properties he buys are usually bank-owned and located in the same part of town—the west side of Indianapolis. “Location, location, location! Houses there are close to good schools and shopping centers, and it offers residents the ability to be downtown within 30 minutes,” he says.

Because Rees buys mostly distressed properties, he usually has a good amount of equity in each one. But distressed properties generally need quite a bit of work before they’re ready to be rented out, he says.

“Dawn Til Dusk currently employs three full-time contractors who can undertake simple repairs all the way through to a total rehab of a property,” he says. “I spare no expense on my properties when it comes to rehab.”

Rees and his team upgrade appliances to top-of-the-line pieces and replace carpeting with durable Pergo flooring. He knows some may find it strange to use higher-end products in a rental, but he has a reason for it.

 

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“One hundred percent of my current tenant base wants to sign a multi-year lease agreement,” he says. “The house is in perfect condition: It has top-of-the-line appliances and is typically painted top-to-bottom. The carpeting may have been switched out in the bedrooms or replaced with Pergo in the living areas.

“As a result, I have uninterrupted cash flow and 100-percent occupancy for the duration of the lease. When the lease matures, the tenant typically wants to sign another multi-year contract.”

Rees hires out most of the work on his rentals and the properties he manages. “In addition to the three contractors, I have also developed a great relationship with qualified HVAC and plumbing contractors who I can call on should my regular contractors be unable to address a particular issue.”

And, like many property owners, he’s found success with big-box stores—which should be a wake-up call for today’s independents.

“I’ve had nothing but exceptional service there,” says Rees. “I am in the store almost daily, so I’ve developed a great working relationship with management and their knowledgeable floor associates.”

While the recession affected his business—“Sadly, many individuals went from full employment to reduced hours or layoffs, and at times, a tenant and I had to part ways”—he says he’s lucky that year after year he’s seeing a constant increase in business.

“House prices in Indianapolis are on the increase but still well below the prices before the housing market crashed,” says Rees. “There are still plenty of great deals to be secured here.”

Get the Business:
  • No matter what type of market you’re in, odds are you have at least a few landlord customers, as the rental market is active across cities and towns of all sizes. “There’s a huge rental market in my area,” Gabbard says. “I wish we had more rental units available around here.” For landlords, the first step is getting a home ready to rent. The second is doing any maintenance or repair for the tenant. Landlords who are preparing a home for rental won’t be looking for premium or high-end products. Instead, they’ll want attractive and durable mid-level choices of paint, flooring, cabinet hardware and more.
  • If landlords have enough properties, they’ll want to buy in bulk. Have 5-gallon buckets of beige paint and contractor packs of hardware readily available, as well as neutral carpet or perhaps laminate flooring—something durable but not too high-end. If they’re doing bigger projects, like remodeling a kitchen, they’ll want off-the-shelf cabinets and laminate countertops. Again, try offering project packages or discounts for purchases over a certain amount.
  • Have locksets available, as a landlord will want new locks installed after buying a rental. Show him how he can rekey the sets himself. Consider offering classes on anything from carpet cleaning to eviction procedures (you may need a specialist for that one). Your customers will see your store as a destination not just for products, but for educational resources and advice.

The Single Female

The past few years have been tough for would-be first-time homebuyers. Between the recession and the high rate of unemployment in many parts of the country, many haven’t had the income to save for a down payment, and those who have struggled with less-than-perfect credit, stricter lending standards and additional fees for Federal Housing Administration (FHA) loans, a common loan type for first-time buyers. Even the federal government’s first-time homebuyer tax credit didn’t bring the number of first-time homebuyers back up to pre-recession levels.

First-time buyers who can get past those hurdles still have to compete with investors, who can make cash offers on the lower-priced homes that a first-timer might want to buy.

But one demographic has been buying: the single female. According to a National Association of Realtors® (NAR) survey conducted among buyers who purchased a home between July 2012 and June 2013, 16 percent of homebuyers were single females, compared to only 9 percent single males.

Women who have more money to invest in purchasing a home, and all new, single homeowners, are going to be shopping in your store for anything they’ll need for routine maintenance and repairs—or possibly for major projects—if they bought a fixer-upper or decide to do some remodeling in a few years.

Historically, about 40 percent of homebuyers are first-time buyers. But in December, only about 27 percent of buyers were first-timers, according to NAR.

Meet the Buyer:

Lauren Schrank
Minneapolis
First-time homebuyer

Schrank headshot 2After living with her parents post-college while she saved money to buy her first home, Lauren Schrank, a marketing associate from Minneapolis, began house hunting in early 2011.

The timing was just right: Home prices in her area were low, and she calculated her monthly payment would be about the same as a rental payment.

“When I was in the market to purchase a home, prices were very low due to the recession,” she says. “I opted to buy a house before home prices began to rise again.”

Schrank knew what she wanted in a home: A location close to the city but with a suburban feel, two full bathrooms, a kitchen in which she could entertain, a fireplace, an outdoor living area and at least three bedrooms.

After nine months of searching, she found it: A 2,000-square-foot ranch with three bedrooms, two bathrooms and a finished basement. The home was bank-owned, so although her offer was accepted in November 2011, she didn’t close until the following February.

“I didn’t particularly search out a bank-owned home, but I found that in my price range, I could get a better deal if I bought a bank-owned home,” Schrank says. As a bonus, the bank paid for new carpeting in the basement and new paint throughout the house.

“There were nice upgrades in the house, which made it stand out more than others I looked at,” she says. “The new paint and refinished floors made it move-in ready, and I really liked the floor plan.”

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But Schrank’s work was far from finished. She’s made plenty of updates to the house since moving in.
Her first step was to upgrade some of the appliances. Next, she removed a cabinet in the kitchen to make it feel more open. She also repainted the family room and is in the process of retiling the entryway.

The work continued outside, where she cleaned up and simplified the landscaping and added a garden and retaining wall in the backyard.

But one of her biggest projects is a repair: “I’m getting my basement completely waterproofed since it flooded last spring,” she says. “I’ve torn it up and plan to redo it this spring.”

As a new homeowner, Schrank is looking for good customer service, employee knowledge and prices as she shops for materials for her home improvement projects. She does most of her shopping at big-box stores, but she also visits her local Habitat for Humanity ReStore, where she can find more unique pieces.

She shops online, too, especially for fixtures.

“I like to have things in my house that represent who I am and what my tastes are. I like to find unique pieces, which I wouldn’t be able to get at a major home improvement store.”

She’s glad she bought her house when she did: “I opted to buy before home prices began to rise again. There’s since been a slight recovery in my area. Home prices are rising, and I’ve seen many new construction projects in my neighborhood and around my community.”

Get the Business:
  • Target new homeowners as soon as they move in. To find the newest residents, check your local paper or online for real estate or property transfers, then send them a “welcome to the neighborhood” packet, which may include a few coupons to your store—try one for a free key and another for $10 off their first purchase—and a flier advertising the products and services you offer. Get them to your store first before they have a chance to establish any routines in their new neighborhood and you’ll have a regular customer.
  • Unlike investors, homebuyers will want higher-quality products. Your paint department is a great place to set up an area where they can sit down and look through books to get ideas of colors they might like. If there’s room, set up a small display of paint swatches in some of your most popular colors, and be ready to explain the difference between “good,” “better” and “best” quality paint.
  • Set up small vignettes in your kitchen and bath department to give customers some ideas of what you sell and how they may want to decorate their homes. Add smaller products throughout the vignettes as selling points for those who may be ready to decorate but don’t need a full remodel. For example, a lighting fixture in a bathroom display or kitchen utensils and a paper-towel holder in a kitchen display will help customers remember to pick up the products they need in their homes even if they aren’t remodeling.

About Liz Lichtenberger

Liz Lichtenberger
Liz is the features editor for Hardware Retailing magazine. She reports on news and trends, visits retailers, and attends industry events. She graduated from Xavier University, where she earned a degree in English and Spanish and was a member of the swim team. Liz is a Louisville, Kentucky, native who lives in Indianapolis with her husband and daughter. She enjoys swimming, reading, doing home improvement projects around her house and cheering on her two favorite basketball teams, the Kentucky Wildcats and the Xavier Musketeers.