The Housing Chronicles Blog: Investors returning to California's Inland Empire

Tuesday, January 6, 2009

Investors returning to California's Inland Empire

The rapid decline in prices in the Inland Empire is now starting to draw various investors, who either buy/flip, buy/fix up/flip or buy/rent for cash flow. From an article in the Riverside Press Enterprise:

After retreating in fear from housing's sudden collapse, those who buy homes as an investment are reappearing in Inland Southern California's beaten down marketplace.

Sharply discounted foreclosed properties are luring back the first wave of professional investors and amateurs, both those hoping to "flip" for a quick buck and those wanting to buy and hold for a future rebound...

The process of "flipping" is still risky, many experts warn, since the investor has to take into account that home values continue to fall, which could erode anticipated profits from a resale..

Brokers say most prospective investors, many of whom were burned by waiting too long to sell properties before prices plummeted, still remain timidly on the sidelines.

Mike Novak-Smith, a broker-agent with Re/Max Results in Moreno Valley who specializes in selling repossessed houses, said since the summer he has seen an influx of investors, who he said now account for about 30 percent of his buyers. He said most seem to be novices, while the more seasoned are waiting for prices to fall further.

Investors also must cope with government regulations designed to rein them in. Fannie Mae and Freddie Mac enforce a limit of four homes per borrower, and the Federal Housing Administration requires the seller of a house purchased with an FHA-insured mortgage to have owned it at least 90 days...

The rekindling of investor interest is bad news to some people who blame investors for having fueled the recently burst real estate bubble.

Investors say they are generally targeting the cheapest and most dilapidated houses nobody else wants and turning them into the nicest-looking houses in the neighborhood...

Not everyone agrees that investors perform a public service.

John Marcell, an Upland mortgage broker, said the FHA will lend up to $35,000 to first-time buyers for repairs or improvements. He said he worries that investors will again inflate home prices by flipping.

Marcell also said that investors who buy houses for income and future appreciation will contribute to an oversupply of rentals.

Prudential California Realty agent Marni Jimenez said in competition for houses, investors generally have an edge over first-time buyers. She said that is because investors come with a substantial down payment.

Investors also tend to have conventional financing that lenders prefer over the FHA mortgages that are geared for entry level buyers that take longer to arrange.

Inland economist John Husing said investors who are buying bank-owned houses for rental income further deteriorate neighborhoods and attract crime. "It is a great strategy for the investor but a disastrous strategy for the community," Husing said.

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