Bottom-feeders: Start your engines!

With home prices falling sharply enough to start cash flowing as investment properties or throwing off enough of a profit to make a purchase (and renovation) make sense, so-called 'vulture investors' are starting to enter the marketplace -- first as well-financed groups buying groups of homes from bank at 50% off peak prices, but now as individual investors thinking they've found an opportunity.

Sounds good, right? Not so fast, and it's not as easy as it looks -- and certainly more difficult than it was when credit was easier. From a Washington Post story:

More people are tossing around the idea of picking up an investment property, lenders and real estate agents have told me. "I'm finding a lot of people asking about them," said Jerry Bartlett, owner of a Jobin Realty brokerage in Kingstowne. Not many can pull it off, though.

Bartlett sends them to get financing before he will even start working with them. "They come back distraught," he said. The lines of credit they thought they could tap may not be there anymore; the credit rating that they thought was pretty good may not be high enough now; their down payment may be shy by 10 percent or more...

The first requirement is cash. Rick Eul, a vice president with Bank of America Mortgage in Annandale, said investors need at least 20 to 25 percent of the price as down payment. "Two years ago it was like, 'Do you have a pulse?' " he said. No longer. It's back to the pre-boom standards of creditworthiness -- or even a tad tighter...

You will have to prove to the loan officer that you have enough income to handle monthly payments on both the investment property and your own home.

If you have a signed lease and have already cashed your tenant's check for the first month's rent and the security deposit, you will still get credit for no more than 75 percent of the rent as income. (That's all you should count on. The remaining 25 percent normally gets eaten up by repair expenses, vacancies and other costs.)...

You will also need a credit score of 720 or better, Uhl said.

Plan to pay a higher interest rate than on your own home loan. Interest rates for investors are now running about one percentage point higher than those for owner-occupied homes.

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Vulture investors returning to the existing home market

First it was funds going after distressed land assets, now the second phase has begun, which targets the existing home market. The housing vulture investors have returned, but this could help provide a pricing floor to the market that so far Congress has been unable to address. From a CNNMoney.com story:

Rock-bottom home prices have finally begun to lure vulture real estate investors into the fray... Peter Zalewski, founder of Florida-based Condo Vultures, LLC, which specializes in bulk purchases of condo properties, is finding very deep discounts for his clients. In one deal he recently negotiated in Tampa, a developer's lender agreed to sell 149 units for $12 million - a 43% discount to the outstanding $21 million loan... ...buyers like Jeff Ball, president of Austin, Texas-base Econohomes, purchase packages of bank-owned homes from lenders and resell them after little if any rehab. He buys five to 50 houses at a time, sight unseen. Often, the homes come with encumbrances, like back taxes, water bills or other liens that can add up to tens of thousands. Still, he comes out ahead...

His business has been criticized; usually city officials would prefer the homes be renovated before they're resold. But Ball said the money spent doing that would make the business unprofitable; nobody would buy at the prices he would have to charge. They would sit vacant and become havens for squatters, looters and drug dealers.

"The most significant thing is to stabilize the situation," Ball said. "Get people back in the house." The new owners move in and start taking care of the properties, according to Ball. If that starts to happen in large numbers, these communities may spring back to life....

Despite these bargains, many big investors who buy in bulk have been slow to start shopping, according to Jack McCabe, a Florida real estate consultant. They're after even deeper discounts, and prices are indeed projected to keep falling in the next year - by double digits in parts of California and Florida.