In a recent report, the National Association of Realtors says that investment property purchases have increased over 60 percent. Although investment purchases have increased, financing remains tight for owner occupied buyers. This makes for a slower recovery, as many would be buyers only have hard money loans for owner occupied homes as an option.

NAR’s 2012 Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2011, shows investment-home sales surged an extraordinary 64.5 percent to 1.23 million last year from 749,000 in 2010. Vacation-home sales rose 7.0 percent to 502,000 in 2011 from 469,000 in 2010. Owner-occupied purchases fell 15.5 percent to 2.78 million.

With this increase in investment property purchasing, we may be seeing the end of the down market. This indicates that investors are feeling increasingly confident about the real estate market.

NAR Chief Economist Lawrence Yun said investors with cash took advantage of market conditions in 2011. “During the past year investors have been swooping into the market to take advantage of bargain home prices,” he said. “Rising rental income easily beat cash sitting in banks as an added inducement. In addition, 41 percent of investment buyers purchased more than one property.”

Yun said the shift in investment buyer patterns in 2011 shows the market, for the large part, is able to absorb foreclosures hitting the market. “Small-time investors are helping the market heal since REO (bank real estate owned) inventory is not lingering for an extended period. Any government program to sell REO inventory in bulk to large institutional companies should be limited to small geographic areas. Even where alternatives are needed, it’s best to rely on the expertise of local businesses, nonprofit organizations and government,” he said.
(read the rest of the story here)

Yun continues on to say that many of these purchases were made all cash (49% to be exact), which underscores in part the difficulty many people are having in obtaining financing to purchase property. This is especially true for owner occupied properties.

“Given the tight credit in recent years, many would-be normal home buyers for owner occupancy declined,” Yun said.

So what is a potential buyer to do? One option is to consider hard money loans for owner occupied homes. Hard money has less stringent credit requirements than the banks do. For example, there is no waiting period between foreclosure or short sale and the time when you can qualify for a home loan. The trade off, however, is the requirement to put more cash down (typically 35% or more).

With improving investment purchase numbers, however, and the roll out of new loan programs to help underwater borrowers refinance, we could be looking at a stabilization of the real estate markets in the near future. Most likely any improvement will start on a local level before it spreads, but any improvement is likely to be welcomed by most.

For real estate investors looking to invest in real estate, hard money lending is definitely and option they can explore. While many banks cap the number of properties a borrower may own, hard money has no such limits. In addition, there are fix and flip type loans for investors looking to buy and sell to an end user for a profit.

As credit loosens up, we expect to see some improvement in the real estate markets. I don’t anticipate the large run up in prices like we saw in the early 2000’s (stated loans had much to do with that), but a stabilization is a great start.