An idea for real estate investors...

From a recent Realty Times article by Ken Harney comes this report of the rise of investors as buyers in the current market

The quarterly "homeownership survey" by realty information firm Move.dot.com found that one of every eight buyers last month was an investor - someone looking to acquire property at a favorable price, planning to fix it up, rent it out or resell later for a profit.


The investor ratio is up from just one in 20 buyers as recently as March, and represents a huge turnaround in Americans' attitude toward real estate.

Buyers who target foreclosure sales are particularly active right now, according to the study, and account for 25 percent of all consumers looking to purchase houses.

Among these foreclosure buyers, fully 42 percent are investors. Thirteen percent say they're buying properties to convert into rentals. Eleven percent intend to rehab them and sell them as quickly as possible.

And interestingly, 17 percent say they plan to let a family member live in them for an extended period of time -- until market values have rebounded enough to sell the house at a substantial profit.

Certainly I see this in my market, especially with houses that banks have marked down to “dump it” prices. In that case I also see a lot of sleazy Realtor deals, too – those sales that take place just after a property comes on the market or just after the latest price reduction that somehow go to the friends and family of the listing Realtor, even if there are multiple offers. We’ve likely all hit those stinky deals. The recent HUD rules on giving potential owner-occupants first dibs on sales may help some, but the real sleaze-bags in our business will figure out how to get around that, too. Until such time as we get more transparency into real estate deals there will always be “Playa’s" scamming the system.

Those clowns aside, I guess I don’t see anything wrong with professional investors (and investor groups, which I see a lot) taking some of the excess inventory off the market. There seems to be lots of investor money out there right now and they are buying up some of the real dregs of the market, so more power to them. I do get a little concerned with the many amateur investors that are out bidding on houses. I know that they think they have done all the right homework – will the place cash-flow and all that – but many just don’t have a realistic picture of the cost to fix up some of these places, so that they can be rented or flipped. It’s from this group that I see the most “boomerang houses” – those that go back on the market within 6-8 months with half-finished fix-up projects.

I think that what some of these investor groups need to do is to put many of these properties back on the market as land contract deals. The investors could make great interest rates, if they would take the risks involved (and after all they were taking a risk on the initial investment). What they would find is a fairly large group of potential buyers, most of whom just went through a foreclosure, who now have steady incomes and manageable debt loads.

What a sweet deal, if some investor who has picked up a house for 20-30% below market value can now turn around and sell it for near market value at an above market rate interest rate. It’s sort of an investor double dip. Maybe that idea will catch on. It's probably too slow of a return for these fast movers.