Strong Rental Market Is Turning Flippers into Landlords

Spurred by a strong demand for rental
housing
and low property prices, investors are buying more houses according to the latest Campbell/Inside Mortgage Finance
HousingPulse Tracking Survey
.  The
report says that investor purchases represented 22.3 percent of closed transactions
for the month of October, the third straight month that investors have held a
share greater than 20 percent.  The
October figure is considerably higher than the 18 percent investor share
reported earlier this week by the National Association of Realtors®. 

Campbell
says that October prices for damaged bank-owned real estate (REO) fell to a two
year low of $101,100 against an average for non-distressed residential
properties of $255,700.  The falling
price of distressed properties and the sheer number on the market is pushing
home prices down overall.  The total
proportion of distressed home sales, as represented by the HousingPulse
Distressed Property Index (DPI), rose a full 4 percentage points to 48.4% in
October.

The gap
between the supply of distressed properties and their absorption by first-time
homebuyers has now widened to 13.7 points in October compared to 8.8 points in
September, indicating that first-time homebuyers have become less active in the
distressed property housing market.

The
retreat of first-time buyers, the prime market for the kind of starter-level house
favored by investors, coupled with low prices are starting to make buying,
repairing, and renting more attractive to investors than flipping properties.  The final factor is the strong demand for
rental units.  Campbell Surveys estimates
that 61.6% of investor properties purchased during the month of October will be
rented out, with the remainder being flipped.

A real
estate agent from Nevada told editors of the HousingPulse, “Investors
are prominent in the city of Las
Vegas. They both flip and rent and buy properties in bulk.
Renting single family homes is an extremely viable option and seems to be a
growing trend in the valley with the decreasing of prices. Our inventory is
dropping so we are seeing more investors becoming aggressive with their offers.”

The
report quoted a second agent from California that, “Given the current
conditions in the market here locally, many of the investors are purchasing
homes to rent until the market turns around then possibly looking to sell in a
few years. Yes, at this point renting homes is a better option than flipping
because the gap between what an investor can buy a house, fix it and flip it
does not cover the cost of re-selling it,” 

Article source: http://www.mortgagenewsdaily.com/11232011_investors_rental_market.asp

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