With prices hitting or approaching bottom in markets nationwide and record number of foreclosures available, professional investors armed with cash-rich investors are emerging as factor in the lower end of the residential market.
Financing for residential real estate investments is more difficult to get than ever and many Individuals who manage to buy properties to fix up and flip are finding they are muscling both amateur investors and prospective homeowners out of the action, snapping up the cheapest properties and helping clear out the excess supply of homes on the market
Data on cash deals is difficult to come by, but First American CoreLogic, which plans to release a report soon on all-cash deals.
“I think it is important to separate investors vs. speculators. I think speculators are finding it tough right now and are certainly declining. Investors on the other hand are in my opinion growing,” said Sean O’Toole, founder and CEO of ForeclosureRadar.
In Minneapolis-North, median sales prices have fallen from around $150,000 in 2006 to around $50,000 today – due almost entirely to the fact that this neighborhood has been one of the hardest hit by foreclosures. At these prices, these properties have become excellent investment opportunities for rentals, which create competition with the prospective owner-occupant buyer.
Investors have come in with cash offers. When presented with multiple offers where most terms are equal, many banks will take the speed and surety of the cash offer versus entrusting a successful sale to a buyer that needs financing to close. In fact, cash can often mean double-digit percentage discounts on the list price vs. a financed offer. These cash offers have succeeded so well in Minneapolis-North recently that while cash offers were only 5 percent of the transactions in 2005, they made up nearly 65% of the sales in 2009.
In San Francisco, Bay Area real estate investors have gone on a shopping spree, snapping up homes in low-cost communities outside the region as falling home prices and low mortgage rates make the economics of buying rental property far more appealing, according to Sue McAllister of the San Jose Mercury.
In the third quarter of this year, for instance, buyers in the nine-county Bay Area purchased nearly 3,000 homes outside the region, up 58 percent from the same quarter last year, typically for prices well below 2008 levels.
The wave of investment was led by purchases in communities stocked with rental housing, with Sacramento, Las Vegas, Stockton and Tracy among the top destinations for Bay Area residents’ out-of-area real estate spending, according to information compiled for the Mercury News by MDA DataQuick.