Westcoe Realtors, Riverside California…It’s time the media “calls off the dogs” when it comes to real estate investors. It seems that every time one turns around, there is another story referencing the “big bad” investor and how all these investors are hurting the real estate market…bad for neighborhoods, buying homes out from underneath first time buyers, etc.
While no one is asking for anyone’s sympathy here, as a company that represents all types of buyers and sellers, it’s important that we dispel some of the myths regarding those investors that purchase single family homes…because contrary to the opinions offered by the media (who are not, by the way, involved in the daily trenches of real estate sales like we are), investors not only serve a vital role in the real estate food chain, but are doing a great job of helping with our market recovery.
Myth #1…Investors are “stealing” properties from first time buyers. In actuality, in many cases, they are doing just the opposite. Since most banks are unwilling to put any additional money into a foreclosed property, these homes by and large sell “as-is”…which is code for many of them look like a bomb has gone off in the home. You name it, and we have seen it…no drywall, no appliances, no flooring, broken windows, stripped of all hardware, half completed home improvement projects, etc. Trust us, the list could go on for miles. In homes like this, they can only sell for cash, since a new lender will not lend on a property that needs any of the work described above. Therefore, since new buyers almost 100% of the time need a loan to purchase a home, they could not buy these houses even if they wanted too. In fact, the only segment of the purchasing market who both has the cash to purchase and the cash to repair the home are the investors. Hence, investors purchase the homes that regular buyers cannot.
Sure, investors also buy homes that do not need this much work, but not that often because they are unwilling to pay the “near market price” a regular home can command. Investors want bargains, and these bargains usually come in the homes that cannot sustain a new loan…the “beaters” that are described above.
So…in these cases, the investor is purchasing a property no one else can.
Myth #2…The investor purchase price kills the sales values in the neighborhood. First of all, the home is worth what it is worth, regardless of who buys it…and since we have already established that it must be sold for “cash”, what other option is there? The home was a wreck before it went up for sale, so the “low sales price dye” was cast once the bank foreclosed on the home.
Secondly, if the investor “flips” the property (fixes it up and sells it right away), you now have a much nicer home, in good condition, usually with at least a new front lawn…a home that looks far, far better than the eyesore that existed before the bank sold it to the investor. Trust us on this…the neighbors love it. Wouldn’t you? You got rid of the empty home that was a gathering place for all the kids (or worse) in your area, and replaced it with a home that now looks a lot like yours…well kept and well groomed. Where is the down side in that?
Lastly, NOW your first time home buyer (the one the media said was “screwed” above) can purchase the home because a new lender will be happy to lend on it…and the ultimate result is that the neighborhood went from continually looking at a vacant, garbage home to one occupied by a new family who will be much better than the bank repo….all made possible by an investor.
Myth # 3…When an investor keeps the home as a rental, it is bad for the neighborhood…slumlords, etc.
While we suppose this can happen, it is rare in the world of the professional investor, for one large reason….they just paid a lot of money to purchase and fix-up the home…do you really think they will let a tenant beat it up?
The majority of the investors that we know, who choose to keep the home as a rental, are very concerned about the condition of their asset. They usually hire gardeners to keep the lawns up, and since the home is now looking much better than the repo it was before (see Myth #2 above), again, the net result is a far better looking home than a repo.
Also, we need homes for tenants…especially now. Where do you think all those former home owners are going once they either lose their homes to the banks, or participate in a short sale? They all need a place to live too, and since they are not able to purchase a home for a few years, they need to rent. Again, most of the displaced former home owners are delighted to have a home to move into, and most investors are delighted to have them. Looks like another win-win to us.
In the end, we all know there are exceptions to every generality noted here. Everyone has a story about a dirt-bag tenant near them who takes lousy care of a home while the landlord does nothing. However, in our experience, that is indeed the exception to today’s investor, not the rule. Today’s investor is a savvy person or company who understands the asset they have needs care and attention and they proceed accordingly…at least accordingly enough for the media to cut them some slack, because these investors are doing far more good than harm.