If you thought that the idea of real estate being a great investment was a thing of the past, think again. The fact that the home prices are so low and rent has not dropped to match, investors are beginning to come back. Another interesting change is that there is an increase of buyers paying with cash.
The share of home sales involving all-cash transactions was 26 percent in January, up from 18 percent a year earlier, according to the National Association of Realtors. The reason for investors paying cash is largely due to the fact that they can avoid paying interest charges on loans and get a larger return on their investment.
National Association of Realtors data shows a pickup in investment activity. Home purchases made by investors climbed to 17 percent in January, up from 15 percent in December and 12 percent in November.
“We bottomed out in 2008, and in late 2009, prices stabilized and investors have returned,” says Mark Fleming, chief economist at First American CoreLogic.
Leonard Baron, a real estate professor at San Diego State University, has bought three homes with cash in the San Diego area in the past eight months, ranging in price from $100,000 to $130,000. He rents the properties. Baron says now is an ideal time to make such purchases. “It’s because prices have dropped so much and rents really haven’t,” he says. “The deals were unbelievable.”
Tanya Marchiol, president of Phoenix-based Team Investments, which buys about 70 properties a month with cash it raises from investors states, “Now is the time to buy for cash flow (through renting properties out). We know the market is going to rebound.”
But Jim McClelland of Tinley Park, Ill, who owns about 300 properties warns that it’s not a get-rich-quick situation.
“Do I think this year will be a better time to invest than in 2009? Yes. There have always been foreclosures but the difference now is you get a better home for the same kind of money. You’re sitting on better inventory. People get into real estate for financial independence. It’s not a quick fix. It appreciates. It doesn’t happen overnight.”