Local markets heat up with investors

May 31, 2011 – Real estate investors, by three to one, will be more active in their local markets compared to typical homebuyers in the next 24 months; and 69 percent of investors say it’ll be easier to find properties in the near future, according to a survey of real estate investors released by Move, Inc., the management company overseeing Realtor.com.

The Move Investor survey suggests that local markets will be heating up with renewed investor interest and activity. Compared to a year ago, 62 percent of investors are paying more attention to home values in their local markets – only 43.5 percent say it will be harder to find bargains and 41.5 percent expect it to be easier to sell their properties in the next six months.

Meanwhile, 22 percent of investors are bullish and expect prices to rise in the next six to 12 months, and 53.5 percent expect prices to remain relatively the same. Twenty-three percent expect prices to fall in the next six to 12 months.

The Move Investor survey also found that investors are prepared to compete vigorously with traditional first-time homebuyers for hot deals. Two-thirds of investors (65.5 percent) said they expect that first-time buyers’ problems getting a mortgage will make it easier for investors to compete for properties. One in five investors (18.5 percent) say they’ll be cash-only buyers, a strategy that’s out of reach for most first-time buyers. Eight out of 10 (80.5 percent) expect cash discounts from sellers.

Today’s investors – not stereotypical, deal-driven flippers

Contrary to the tactics used by “flippers,” 50 percent of today’s real estate investors plan to hold their properties for five-plus years. Only 11 percent expect to sell within 12 months of purchase. Two-thirds (67.5 percent) say they’re investing for the long term.

Fifty-nine percent (59 percent) told Move they’re new to real estate investing, with 33.5 percent considering their first investment purchase and 8.5 percent in the process of buying and selling their first investment property. Another 17 percent said they just completed their first transaction and plan to make more. Only 36.5 percent have experience in more than one property transaction.

When it comes to repairs and maintenance, 56.5 percent of investors say the repair and maintenance of investment property has not been difficult. Moving forward, 42 percent plan to invest their own time and energy to improve, repair and maintain their properties. The rest said they’d hire a contractor for repairs (29.5 percent) or purchase move-in-ready properties (28 percent). The majority (65.7 percent), don’t expect repair costs to exceed 20 percent of the property’s purchase price.

“This data suggests today’s climate is hot for investing and is attracting a lot of new people that don’t fit the stereotypical deal-driven flippers that buy and sell properties quickly,” said Move, Inc. Chief Executive Officer Steve Berkowitz.

Investors combine cash and credit to snap up properties

While cash is king in many circles, 75.5 percent plan to combine cash and credit to purchase properties as they build their real estate portfolio. In fact, 59.5 percent plan to put less than half down on their next property purchase and they’ll finance the rest. Those planning to use more than 50 percent cash and finance the remainder account for 16 percent of today’s investors. Investors told Move the second most difficult challenge has been finding financing (57 percent).

“The fact that most real estate investors plan on combing cash and credit for their purchases goes against the conventional wisdom that investor transactions today are mostly cash-only sales,” says Berkowitz. “We were surprised to learn that 75 percent of investors are financing portions of their purchases. This suggests they’re seeing tremendous or once in a lifetime opportunities and may be tapping into credit or taking out second trusts on existing properties. The data also shows they’re expecting high returns to match the level of investment they’re making in an arena that is new to many investors.”

High risk leads to high ROI expectations

Based on the investments they’re making in today’s environment, real estate investors clearly expect high yield returns. Nearly half (48 percent) expect a profit of 20 percent or more from their property investments, a 4 percent annual rate of return over five years. Another 40 percent expect a profit of 10 percent, and only 6.5 percent expect a 5 percent or less return on investment. Half (50 percent) of today’s real estate investors plan to hold their properties for five-plus years.

Property investments gateway to homeownership for many

While the survey shows investors will outnumber traditional homebuyers three to one, nearly half (49 percent) plan to live in their investment property until it’s sold or turned into a rental property. Slightly more than half (56.5 percent) will put their investments to work as rental properties, and 28 percent plan to purchase vacation property that they’ll eventually sell. The Move Investor survey also found 30 percent of real estate investors are interested in buying retirement property as an investment.

“The survey suggests some first-time buyers may be looking at investing as a strategy to becoming homeowners,” Berkowitz said. “While today’s market is tough for some, it’s also motivating millions to take an unconventional approach and creatively search for new ways of entering the housing market.”

© 2011 Florida Realtors®

Real estate flippers back in South Florida, but this time they could help

MIAMI – Oct. 8, 2009 – The flippers are back.

Bolstered by swelling foreclosures and bottomed-out prices, investors are returning to the South Florida real estate market, snapping up distressed homes with cash payments for either a quick turnaround or a short-term rent-then-sell investment.

Unlike the speculative flippers during the boom – scourges who unnaturally jacked up prices, spawned reality TV shows and led to the economic crumble – today’s flippers are erudite capitalists who could usher in positive change by buying dilapidated and abandoned homes, patching them up and selling them for a market-bearable price, experts say.

The downside: These cash-in-hand guys are competing with regular folks looking for deals and struggling to find loans.

But Realtors say this whole foreclosure flip phenomenon is not for the faint of heart.

It takes legwork. Homes may carry large HOA or tax liens. Many are stripped of appliances, toilets, countertops – everything but the drywall, and sometimes even that has been plundered.

“Without a doubt, people with opportunistic profit motivations are reentering to purchase properties,” said market analyst Jack McCabe of McCabe Research and Consulting in Deerfield Beach. “But this isn’t the group of cocktail sippers who were bragging years ago about buying and flipping. These are real investors.”

Jupiter-based Pudlit Joint Venture incorporated as a limited liability partnership in mid-June and began paying cash for Costco-style home buys.

In August and September, Pudlit purchased 42 Palm Beach County homes, according to the property appraiser’s office. The group’s buys vary from Lake Worth’s D Street to Wellington’s opulent Olympia.

Realtor Robert Littman, who represents Pudlit, said the company is made up of a “couple” of investors who are willing to do the job that banks aren’t – cleaning, re-roofing and replacing air condensers that disappear into the night.

Littman has sold eight homes.

“This is a very difficult job,” Littman said. “You could go down to the courthouse and look at hundreds of properties and then only buy two.”

Foreclosures in Palm Beach County grew substantially in August, with 4,150 receiving a foreclosure filing, a 110 percent increase from the same time the previous year.

St. Lucie County had 1,649 filings in August, up 57 percent from a year ago. Martin County, with 248 foreclosures, was up 8 percent from August 2008.

Curtis Lowe, president of the Realtors Association of St. Lucie, said he’s also seen an increase in investment buys on the Treasure Coast. He had a client “more than happy” to pay the asking price on a flipped home because it was move-in ready.

Another wave of foreclosures is expected to hit Florida in 2010 as unemployed workers struggle with payments.

University of Florida economics Professor David Denslow said out-of-state investors will likely follow.

Actually, they’re already here.

Calabasas, Calif.-based group LE 1 LLC is an investment fund run by real estate investor Paul Elis, who is tiptoeing into the Palm Beach County market.

With a local partner, he paid $125,000 in cash for a four-bedroom home in West Palm Beach in May. Newly remodeled, it’s now on the market for $244,900.

But with few offers, Elis, who says he’s been flipping homes for profit for 40 years, is considering renting the home for a year or two before he sells.

“I know Palm Beach will be potentially rewarding,” Elis said. “This business is not about getting lucky with markets, it’s about skill and technical competence.”

Slowing down the flippers – and that’s not necessarily a bad thing – is the fact that buyers may have trouble getting Federal Housing Administration loans if the home has changed hands within the past 90 days.

To move the glut of houses on the market, the FHA has relaxed its 90-day rule for buyers using federal Neighborhood Stabilization Program Grants, but the policy still aims to prevent the predatory turnarounds and sky-high price increases that made “flip” a four-letter word.

Even today, Elis and his sort are called “vultures” for picking at the bones of the real estate market.

“Some people think of them that way,” said John Thomas, Palm Beach County director of residential appraisal services. “But someone has to clean up this mess.”

Copyright © 2009 The Palm Beach Post, Fla. Distributed by McClatchy-Tribune Information Services.