Property investors obtained large mortgages during the most recent housing boom in the hopes of capitalizing on rapid home-price appreciation by quickly buying and reselling, or "flipping," single-family homes and condominiums. No more. In the current market downturn, investors are focusing their attention on small rental apartment and commercial buildings, primarily in Texas and other markets where price gains are still anticipated. Rather than flip these properties, investors are concentrating on cash flow and generating profits over the long term.
Developers, especially those in Florida and Philadelphia, are responding to market changes with deals that promise five years' worth of rental income. Investors accounted for only 8.4 percent of home sales from January through September, according to First American LoanPerformance — down from 9.5 percent during the corresponding period in 2005.
In the third quarter, the company reports a 70-percent drop in mortgages to purchase investment homes from the previous July-through-September period.
Jack McCabe, a Deerfield, Fla.-based real estate consultant, says investors have largely fled southern Florida, Phoenix, Las Vegas, San Diego, and the District of Columbia — markets where high home prices and a slowdown in sales have made property investments less feasible.
Experts report that single-family homes and condos will experience minimal appreciation during the next five years. Therefore, investors who bought during the boom either can sell at a discount or take a moderate loss by holding onto their properties while waiting for the market to pick up.
Source: Wall Street Journal, Ruth Simon (12/24/06)
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