Who’s buying foreclosures and how to attract their business

By Marcie Geffner

Real estate investment is back in style. And that means REALTORS® need look no further for new business than these profit-minded buyers, who’ve returned in droves to some of California’s weakest housing markets.

“Investors are coming back into the market, and they are changing the dynamics of the market,” says Lori Mode, a REALTOR® with Keller Williams Realty in Elk Grove, south of Sacramento.

What Investors Want

REALTORS® who want to work with investors need to understand their objectives and realize that, unlike other home buyers, they’re highly focused on cash flow and the potential financial return on their investments. Whereas a few years ago, investors were looking for properties that could be fixed up and quickly resold or “flipped” at a substantial short-term profit, investors now seek properties that can be bought at a discount, leased to tenants, and accumulated to build wealth and generate rental income over time. Some investors buy property to supplement their retirement income; others purchase a home they can rent to tenants and then later transfer to their children, who may still be in high school, according to Adam Brett, a REALTOR® with RE/MAX North Orange County in Fullerton. Either way, investors today expect “to make money in the long-term,” he says.

“Investors are very smart right now,” adds Juanita Anderson, a REALTOR® at Prudential California Realty in Antioch, east of the San Francisco Bay Area. “They are looking for properties in good locations that are sold at rock-bottom prices. … It’s about location; it’s about pricing; and it’s about loans.”

Due perhaps to both that bottom-line focus and the empowerment of the Internet, some investors have taken a do-it-yourself approach to real estate, Brett notes. He says many of them prefer to locate suitable property themselves and only then contact a REALTOR® to help them write up an offer and close the transaction. These requests for limited services may be accompanied by demands for commission concessions. But Brett, for one, doesn’t take umbrage at the pointed suggestion that he should rebate part of his earnings.

“I will do it because I didn’t spend any time on it,” he says. “It’s another contact that will get me referrals, and if that were a referral from another broker, I’d be paying [a referral fee] to the other broker. It’s worth it.”

Investors can be very strong buyers, so strong, in fact, that they often trump first-time owner-occupant buyers in multiple-offer situations, notes Bruce Durham, a REALTOR® and partner with Mode at Keller Williams. Investors may be willing and able to use all cash, waive all contingencies, and close the transaction quickly.

What investors can’t do today is buy property without a down payment, but even that doesn’t pose a problem for many of them, even if they aren’t all-cash buyers. “Most investors who are coming to us have good credit and 20 percent [down payment],” Mode says. “We haven’t had any issues with any of our investors not getting financing.”

Learn More About Investors

REALTORS® who want to learn more about real estate investment and what investors want can consult a local or online bookstore. Mode especially recommends The Millionaire Real Estate Investor by Gary Keller, founder of Keller Williams Realty.

Anderson is a believer in on-the-job training. “If you want to be an investment specialist,” she says, “you need to get experience, and experience isn’t found in a book. You can get experience even if you are working with one investor and writing offers for multiple properties.”

Mode, who owns, as well as sells, investment property, learned one important lesson through trial and error. That was to be wary of self-proclaimed well-qualified investors who want to make lots of offers that are significantly less than the seller’s asking price in a strengthening market. She says she wrote up maybe a dozen such offers for one out-of-state investor who wanted to offer 50 to 60 cents on the dollar. None of his offers was accepted, and she eventually decided not to write any more for him. This activity “makes you look bad to other agents,” she concluded, and “is a waste of your time.”

How To Find Investors

REALTORS® can prospect for investors in much the same way they do other home buyers.

Brett relies on the Internet, especially his blog and his Web site, which features an investor-friendly property search function. He also researches information about properties that may be good investments and are either for sale or soon to be on the market, and then he hands out that information at his open-house events.

“I have a current list of all notices of default, trustee sales, short sales, and bank repos [repossessions] currently active in the surrounding areas. When they [investors] come in, the information they are looking for is right there,” he says.

He also tries to emulate what other successful REALTORS® have done to attract investment business.

“I look at what the best top-producing agents who work with investors are doing and then I copy them and I try to improve on what they do,” he says.

Anderson uses advertising to bring in new business. She especially swears by Craigslist, which, in her experience, has been a strong magnet for investors.

Fence-Sitters Await Rock-Bottom Prices

While many investors are already active in hard-hit markets, others “are still waiting for the bottom,” Durham says. Investors who are still on the fence may be concerned that if they buy today, they might experience a loss on their investment, even if only temporarily and on paper.

Brett suggests REALTORS® can overcome such objections by emphasizing the investor’s long-term objectives and pointing out that “now is the best time to buy for the long term because you have your choice of homes on the market versus when the market is on an upward swing, there are very few homes on the market that are desirable.”

That’s a strategy to keep in mind until then.

Look Who’s Buying

> Persons seeking to supplement their retirement income.

> Persons seeking rental properties.

> Parents with an eye toward later transferring a rental property to high school-aged children.

How to Find Investment Buyers

> Craigslist

> Your blog and/or Web site

> Add an investor-friendly property search function to your Web site.

> Stay ahead of the market and know which properties received a notice of default and could become a short sale.

C.A.R. Resources

Visit C.A.R.’s Online Store for publications designed to assist agents with foreclosure sales, such as C.A.R.’s Comprehensive Guide to Foreclosures, C.A.R.’s Basic Guide to Short Sales, “Pre-Foreclosure Property Investor Kit,” and Foreclosure Investing for Dummies. http://store.car.org/Default.aspx?PageType=0&Param1=4018

Marcie Geffner is a freelance real estate reporter and former senior editor of California Real Estate magazine.