Residential Real Estate Investment Makes a Comeback

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Broderick Perkins | AOL News

April 29th, 2010 - The number of buyers paying 100 percent of a home's list price was up 50 percent in the first quarter for Manhattan real estate law firm Edward A. Mermelstein & Associates. The properties ranged from a $3.1 million multifamily investment on the Upper West Side to a $17 million Upper East Side town home.

In Berkeley, Calif., three out of four March deals landed by Ira Serkes at Pacific Union Real Estate were all cash buyers, largely from the area's high-tech community.

And in Sunnyvale, Calif., Julie and Eric Ziemelis sold their triplex investment after only six days on the market to a buyer offering $30,000 more than the $799,000 asking price, because the buyer came to the table with 70 percent cash down.

Residential real estate's big spenders are back.

While some experts predict the full housing recovery is still nearly a generation away, a growing number of deep-pocket investors are buying as if happy days are already here again.

A new Move Inc. survey said interest in residential real estate investment has more than tripled in the past year. That's good news. Upticks in residential real estate investment are often a precursor to a housing recovery.

More than 17.2 percent of all potential home buyers today say they plan to purchase a home in the near future as an investment, compared with just 5.6 percent a year ago, according to Move Inc., a network of real estate data and information websites that include the National Association of Realtors' Realtor.com.

More than 10 percent (12.3 percent) of Americans planning to purchase investment property in the near future say they will pay for the property using 100 percent cash, and 12.8 percent will use cash for more than 50 percent of the purchase price and finance the rest, according to Move.

The Move survey said nearly half of potential real estate investors, 46.5 percent, say they plan to own the property for six or more years. Sixteen percent expect to hold the property between two and five years, while 10.6 percent are flippers who plan to own the property between six and 24 months.

Investment sales are getting a lift from record-low interest rates and home prices in some areas that are down as much as 50 percent from the market's peak.

Sifting through the wreckage of the housing bust, investors are lured by deep discounts in distressed properties in foreclosure, short sales and loan modifications that don't work out.

RealtyTrac estimates foreclosures alone will climb to more than 4.5 million this year, up from 3.96 million in 2009.

Mermelstein co-founder Edward A. Mermelstein says investors from abroad are cashing in on the weak U.S. dollar.

"If you are like me, you've been buying up foreclosed homes that were once part of those bundled mortgage-securities products. Those who have the cash and/or credit to buy bank-owned properties have made some excellent buys in the last couple of years. Those deals are still coming in and will continue to do so," blogs Scott Nachatilo, a real estate investor from Oklahoma City.

Government assistance is also helping move distressed properties that investors purchase, fix up and flip.

The Federal Housing Administration's one-year waiver of anti-flipping rules that took effect Feb. 1 allows FHA borrowers to acquire foreclosed homes from owners who have held the title for less than 90 days.

That gives first-time buyers a shot at investor-renovated homes, said Vicki Bott, a deputy assistant secretary at the Department of Housing and Urban Development in Washington.

Under previous conditions, the FHA prohibited insuring a mortgage on a home owned by the seller for less than 90 days, to prevent the flipping of properties at inflated prices.

The prohibition was waived because the FHA and its overseer, the U.S. Department of Housing and Urban Development, recognizes that acquiring, rehabilitating and reselling fairly priced foreclosed homes can take less than 90 days -- when well supervised.

"Of the 7,981 sales in March in Maricopa County [Phoenix is the county seat], nearly 20 percent were cash. The majority of the cash deals are on foreclosure auction properties, with the remaining numbers being comprised of bank-owned properties which are underpriced for the market," said Bill Gardner, an investor and real estate agent with HomeSmart Real Estate in Anthem, Ariz.

"With an underpriced property, cash gives a tremendous advantage in closing speed. On properties where existing damage prevents FHA or VA (Veterans Affairs) lenders from financing the property, investors can remedy this situation with minor repairs and profit once the property is resold," Gardner added.

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