Investors Are Back and Buying with Cash!

More home buyers are snapping up properties with cash, a trend driven in large part by investors returning to the market after four years of falling prices around the country.

The share of home sales involving all-cash transactions was 26 percent in January, up from 18 percent a year earlier, according to the National Association of Realtors. The figures come from a survey of members about their most recent transactions.

Many home buyers and investors also are paying cash, but investors are largely using cash so they can avoid paying interest charges on loans and get a larger return on their investment. Home purchases made by buyers identified as investors climbed to 17 percent in January, up from 15 percent in December and 12 percent in November. Many investors say they’re financing their purchases with cash on hand, rather than borrowing; according to NAR data.

Some Realtors also say they’re seeing increased investor activity. “Flippers, rehabbers, investors … are, in fact, buying,” All-cash purchases also reflect a growing number of investors buying higher-end properties without credit, says NAR spokesman Walter Molony. That’s a sign that some investors see real estate prices as having nowhere to go but up. All-cash offers give buyers a competitive edge on rival offers -even higher ones – that are dependent on financing. Cash deals can close faster and are less likely to fall through.

“You have to have cash to be able to close quickly and have negotiating power. Cash is king,” says Tanya Marchiol, president of Phoenix-based Team Investments, which buys about 70 properties a month with cash it raises from investors. “We do want to flip it or generate cash flow (through renting it out). Now is the time to buy for cash flow. We know the market is going to rebound.”

The wholesale real estate market has changed dramatically over the last few years. Originally, wholesaling simply meant buying from homeowners who were in distressed situations and flipping them to other investors who would rehab and resell them to the retail market. However, it was not uncommon to find and “flip” a commercial property or high-end homes.

Some of the past real estate cycles we have seen are the wholesaling of commercial properties and single family homes by the Federal Government when the Savings and Loan Crisis took place in the 1980’s.Another common Federal Government wholesale that lasted a few years were the HUD properties that initially were sold to anyone, later to just homeowners who would live in these properties and even later, both to homeowners and investors.

Conventional lenders, mostly banks, started holding foreclosures in the rising markets in the Southeast and Southwest and literally played the market for a few years and even financed investors with short-term, usually one-year loans at 7% – 9% while these properties were rehabbed and resold. Throughout this history of lending institutions and governmental agencies “wholesaling” properties to investors and homeowners, investors have made a substantial part of their profits from buying low and selling only slightly higher, averaging profits in the range of a few thousand to tens of thousands of dollars.

In the wild days of the early 2000’s, these wholesale profit spreads expanded with the result the homeowner or end buyer had to pay more and more for a single family home. Investors shifted their sights to condos which lagged the market’s move for years. As investors bought and sold condos higher and higher, it caught the attention of developers who jumped on the “free” money financing for buyers. We are now living the results of the failed speculators;  other than those that got out very early had been net losers.

The last two months in the tri-county area of South Florida, over 9,000 properties were sold and almost 25% were REO’s (Real Estate Owned) properties that lenders had foreclosed and were resold mostly to investors. This represents the beginning of a change in the cycle of the wholesale market because no longer does an investor have to approach a homeowner to get a good to great deal, now he can just wait for a lender to foreclose and put the property on the market. Ironically, the sale price of the REO is almost always less than what a lender could have made by doing a short sale!

In summary, the real estate market is constantly changing and will always be a gold mine for investors who have the fortitude and understanding of the trends and do deals with as little money at risk as possible.

Filed under: Blog by Kim Bregman
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