First in a four-part series
Cash-rich investors are scooping up bargain properties and often times beating out first-time home buyers competing for the same property.
Scott Abell, an Oakdale-based Century 21 M&M and Associates Realtor, said investors typically either buy and then resale a property, or buy and keep a property for rental cash flow and long-term appreciation.
“People that have the cash are buying them and doing a little lipstick and rouge and selling them,” said Abell, who owns 10 rental units. “A lot of the investor buyers also have been buying low-end residential properties and turning them into rentals.”
Shannon Meredith, a Century 21 M&M Realtor in Lodi, said most investor property is bought “as is,” but the fixes usually are not too difficult or expensive.
“You can really spruce up a home with just paint and carpets,” she said.
Investors often beat out offers from first-time home buyers by offering an all-cash purchase. Typical first-time buyers, many who can finally afford to buy a house, need a mortgage to complete the deal.
Abell said he has mixed feelings about first-time buyers, often young couples just starting out, losing out to cash-rich investors.
“I believe in free enterprise, it’s America,” he said. “But it’s frustrating. I’ve got a son, 21, and I know parents want their kids to get a piece of the rock.”
Most of the bargain homes are REO — real estate owned by a bank — foreclosed properties returned to the lending institution. Banks want the easiest deal and FHA, VA, or conventional loans can be much more complex than an all-cash purchase. Most mortgages require inspections, mandatory repairs and can fall through during the escrow process.
The recession and nearly 52,500 homes lost to foreclosures in Stanislaus, Merced and San Joaquin counties have driven down properties to bargain prices. Prices for many “fix-it-upper” single-family homes are less than $100,000 and multiple-unit complexes* — including duplexes, triplexes, and fourplexes — can sell for $50,000 to $60,000 per unit.
“The investors are more after the multiple units than the single-family homes,” said Abell.
A fourplex, said Abell, purchased at $190,000 can generate $3,200 a month income. Even figuring in financing, insurance and maintenance, there is a positive return, called cash flow in the industry, each month.
“They’re great deals. That’s why I have three or four in escrow right now,” he said. “They can make eight to 10 times what they can at a bank.”
Tami Gosselin, a Century 21 M&M Realtor in Modesto, said she has represented a client looking to buy their first rental to investor groups with a minimum of $5 million to spend.
NEXT FRIDAY: Investment groups
*In Property Search Criteria click on Type, then choose Multifamily.