Direct household investment in residential rental real estate during the 2000s
Seay, Martin Craig
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This research investigated the household characteristics associated with investment in rental real estate during the 2000s. Furthermore, the effects of changing economic conditions on the household decision to invest in rental real estate were examined. Given limited targeted research, a literature review was constructed incorporating studies related to both investor risk-tolerance and risky asset ownership to develop a basis for understanding household investment behavior. The Life-Cycle Hypothesis of Savings (LCH), with support from Modern Portfolio Theory (MPT), was utilized to form a theoretical basis, indicating changes in household investment behavior would be minimal due to short-term trends in market conditions. Data were utilized from the 2001, 2004, and 2008 panels of the Survey of Income and Program Participation (SIPP). Bivariate descriptives indicated the majority of rental real estate investors were non-Hispanic, White, married, childless, homeowners, healthy, high net worth, had either some college or a bachelor’s degree, were age 45 or older, lived in the south or west, high income and not housing burdened on their primary home. Furthermore, Non-Hispanics, Whites, Asians, homeowners, married individuals, householders in good health, high income households, high net worth households, highly educated households, and households that were not housing burdened consistently reported higher levels of investment. A series of logistic regression analyses indicated that, holding all else equal, African-Americans, homeowners, and higher net worth households were consistently more likely to be invested in rental real estate, as compared with Whites, non-homeowners, and lower net worth households, respectively. Marital status, age, ethnicity, income, and housing burdened status were significantly correlated at the multivariate level with rental property investment at some point in the decade. Lastly, shifts in the relationship between household characteristics and investment in rental real estate were noted. Characteristics that exhibited changing relationships with rental real estate investment include marital status, age, net worth, and ethnicity. The results and implications of this study provide the foundation for understanding household investment in rental real estate and add to the literature on risky asset investment. Furthermore, this study provides evidence that some investors are sensitive to short term market trends in their investment behavior.