Real estate investors returning to market

Savvy investors are always the first to jump in a potentially profitable housing market and a new survey indicates things are heating up.

More than 12 percent of homebuyers today plan to purchase a home as an investment, compared to less than half, only 5.6 percent, just seven months ago, according to a recent Move.com Homeownership Survey.

"If you anticipate inflationary conditions in the future, investment property could be a good bet to hedge against it, as long as you purchase in a location that does not have an over-supply of inventory, which would prevent you from raising rents at a pace sufficient to compensate for the rising rate of inflation," said Nancy Osborne, chief operating officer of Erate.com, a Santa Clara, CA-based financial information publisher and interest rate tracker.

Foreclosure buyers account for 25.3 percent of consumers interested in purchasing a home and 42 percent of potential foreclosure buyers regard their purchases as investments, while 57.6 percent plan to live in the foreclosed home themselves.

"This latest Homeownership Survey validates what many had hoped to see in the housing markets -- affordable prices and ample inventories are restoring the appeal of real estate to investors while providing opportunities for first time home buyers to enter the market," said Move, Inc.'s chief revenue officer, Errol Samuelson.

Interest rates below 5 percent for much of the year and low home prices, which may be at or near market bottom, are also bringing investors back to the fold.

The survey of 1,004 consumers, conducted from October 16 to 18 this year, found:

• Foreclosure buyers are confident they will profit from discounted purchase prices, as well as healthy appreciation rates over the next five years.
• Most foreclosure buyers, 58.2 percent, expect to pay 20 percent or less than market price for a foreclosure, while 38.5 percent expect a 25 percent or greater discount.
• Expectations are high -- 73 percent expect their properties to appreciate ten percent or more in five years, 28 percent expect their purchases to appreciate 20 percent or more.

Given the current market of flat and falling home prices, that may sound like high hopes, but RealtyTrac.com explains that lenders want to unload overhead-heavy inventories of repossessed and foreclosed home.

That forces lenders to list their homes below market and offer properties at a discount, giving the buyer some built in equity.

• Foreclosure buyers intend to convert their foreclosures into rentals (13.2 percent), fix them up for re-sale (11.3 percent), or house a family member until the home can be sold at a profit (17.4 percent).

In some markets, especially resort and vacation rental markets, where rents are higher, conditions bode well for investors who want to enjoy positive cash flow as they wait for equity to build.

Osborne said, "If you find a well priced property located in a healthy rental market and are able to manage and monitor the property and maintain a positive cash flow from the onset for a unit used strictly for income purposes, rather than being held with the expectation of price appreciation, this could be a good time to become a landlord."