For the business of residential real estate investing, these are not the best of times.  Bargains on attractive properties to flip or to hold and convert to rentals are tough to find.  Foreclosures and short sales have fallen to ten percent of home sales, the lowest level in four years, according to RealtyTrac.  Moreover, NAR reports the foreclosure discount has shrunk to only 15 percent below market value.

While the salad days of the foreclosure boom are over and along with it the quick profits of flipping, real estate investing is far from dead.  Even with the decline, distress sales still account for about 720,000 sales a year.  At 14 percent in May, the investor market share is still 70 percent of its peak in 2013.

The question is, with median price increases breaking double digits in many markets, where are investors finding inventory at prices that they can work with?

Part of the answer is that rising rents are supplanting some of the profit lost on more expensive acquisitions.  Strong appreciation in median priced homes over the past two years continues to make investing attractive at least for the short term.  But a few investors are doing even better by buying properties from a booming mini-industry of companies that buy houses fast and for cash from owners who are unable to or are unwilling to pay a six percent broker’s commission and pay tens of thousands to get a house in shape to sell.

By far the largest of this new breed of investor inventory is with HomeVestors® independently owned and operated franchisees.  HomeVestors of America, Inc. is a 19-year old franchisor that has just added its 600^th franchise, has purchased more than 60,000 homes and sold many to investors and owner/occupants.

“The foreclosures and that whole debacle with subprime lending made more people aware of the investment part of the industry and more people are excited about it.  The reality is it hasn’t changed a lot since we started in 1996.  What has changed is more people are interested in investing and there’s a bigger audience not only of investors, but renters who probably will not go back to owning a house,” said David Hicks, co-president of HomeVestors.

“Rentals have been booming.  There’s been a mini-boom in multifamily housing construction going on. Residential construction has also increased, but most of it is for the larger, more expensive houses. But much of the demand is for the smaller properties that investor or first time home buyers will buy,” said Hicks.

Rentals are indeed booming.  A new wave of renters is driving record construction of multifamily housing, creating 770,000 new rental houses every year since 2004.  Some 3.2 million homes that were converted to rentals between 2004 and 2014, accommodating more than half of the growth in occupied rentals over this period.  New apartment construction has added another 1.2 million rental units since 2010.  Yet demand is still outpacing supply, driving vacancy rates to decade-low levels and rents are responding with three to four percent annual increases.[5]

These market conditions are creating opportunities for new competitors with a similar business model. But HomeVestors has decades of experience in delivering properties that investors want.  Its average house is 30 years old, for example.  “Every year a new crop of houses fits our criteria, so there is a never ending supply,” said Hicks.  Franchisees also tailor their properties to the small, local investors that make up their markets by partially rehabbing properties and selling them at a discount so investors can save money by doing the finishing themselves.

HomeVestors has been doing its part to meet investor demand, buying about 6,500 houses this year, and rehabbing many of them at an average cost of approximately $20,000 per house.  Partly because it buys directly from consumers and doesn’t rely on distress sales for its supply, it’s prospering as other sources of investment properties struggle to meet the demand.  Hicks said 2015 could turn out to be the company’s biggest year yet despite the misperception that real estate investing is shrinking.