Bargain properties

Della Ramsey pounced on a Santa Rosa condominium last month when the price dropped to $99,900, paying cash for the bank-owned property she now will rent out.

The condo will net her about $500 a month after homeowner fees, taxes and insurance, a solid return on an investment Ramsey plans to hold onto until Sonoma County's housing market turns around.

"With home prices going down, down, down, I was thinking, I had this money sitting in the bank not earning a whole lot of interest. And if you buy low, the market's eventually going to go back up," Ramsey said.

Tumbling home prices are drawing a growing number of investors back into Sonoma County's battered real estate market. Today, roughly a third of all buyers are investors who don't plan to live in the home they purchase, up from about 10 percent last spring when the buying spree began, according to local real estate agents and mortgage brokers.

Along with first-time buyers seeking an affordable home to live in, investors are helping drive a surge of sales at the lower end of the region's housing market.

While the credit crunch has made it harder to get a mortgage, investors are hunting for deals created by an unprecedented wave of foreclosures in Sonoma County. Two out of three home sales involve properties in foreclosure or short sales, where homeowners sell for less than they owe on a mortgage, according to Bay Area Real Estate Information Services, the county's multiple-listing service.

Sales growth at lower price ranges is beginning to cut into the glut of distressed homes on the market. But the pace must continue before the housing sector can pull out of its downward spiral, analysts said.

"All these have to go away before the market can stabilize," said James Madison, a foreclosure specialist at Coldwell Banker with three decades in real estate.

Still, the return of investors is a sign that the housing market may be beginning to emerge from its worst downturn in more than two decades. Sales have increased for five consecutive months, compared with a year ago, and investors are betting that prices of distressed properties have hit bottom.

With houses in move-in condition selling for under $300,000 and condos going in the low $100,000 range, many investors can realize positive cash flows from rents after mortgage payments and other costs.

Even if they don't make money immediately on rents, investors hope their properties will eventually gain value, with home prices currently sitting at six-year lows.

"Now we're getting into the numbers where you can actually get some cash flow. Appreciation is the gravy. But that's not why you should buy property. An asset is something that produces a return," said Michael Morrongiello, a real estate investor in Sonoma.

The market is not for everyone. Investors must have enough money to make a substantial down payment -- at least 25 percent or more -- and a very good credit rating to qualify for a loan.

But the combination of falling prices and stable rents makes this the best time to buy investment property in more than a decade, said Morrongiello, who organizes investor education programs for the Bay Area Wealth Builders Association, a real estate networking group.

By contrast, he said, some investors who bought as prices soared during the housing boom that peaked three years ago got burned because they only bet on rising values. Their monthly financing costs far exceeded the amount of money they could ever hope to pocket from rents.

"That's what got them in trouble. They were speculating," he said.

Jennifer Jones, a longtime investor in Santa Rosa, recently started looking to buy rental property. She is targeting the $300,000 range and finding plenty of choices.

"The cash flow works right now, plus we've reached the bottom of values. And there's a lot of stuff on the market and good deals available," she said.

Even novices, such as Ramsey, are joining the ranks of investors.

After looking at a dozen condos and houses, the Santa Rosa resident came back to a two-bedroom condo after a dramatic $40,000 price reduction.

The lender, New Century Home Equity, wanted to clear the foreclosed property from its books, even if it meant selling for a significant loss. The $99,900 price was far below the $245,220 the former owner owed when the lender took back the condo in April.

"I was like 'wow.' And then I went and looked at it and it was in very good shape. If you could do it, you had to do it," Ramsey said.

Then she spent $7,000 on new appliances, inside paint, a new sliding glass door, lighting and kitchen flooring. Ramsey signed up a property manager and found a tenant the same day she placed the advertisement for the $1,150 a month rental.

Ramsey said she is comfortable with the investment even if it loses additional value during the housing downturn, which analysts have predicted will continue into next year.

"You just hang onto it and when property values start going back up, then you can sell it or keep it as an investment for retirement," she said. "If it's 10 years, it's 10 years. I'm holding onto it."

Investors play a role in helping stabilize housing, purchasing homes banks are clearing out or residences desperate homeowners can no longer afford.

But financing investment home purchases could be more difficult because of a handful of tighter guidelines lenders have adopted in the recent months:

Buyers can't own more than four homes with loans on them.

Buyers must have 25 percent to 30 percent equity in homes they own before they can obtain a loan for another purchase.

Minimum down payments are higher depending on the size of a loan.

Deals are getting done, but with more creative financing, said David Rendino, a CPS Property Advocates agent who represents investors.

"Investors are coming in, but it really is tougher," he said. "A lot of people are paying cash for properties and going to local banks. A lot of people are pulling money from IRAs and rolling it into properties. There are home equity lines out there as well. They haven't all gone away."

Investors are staying in the market, taking out an increasing number of loans that Karen Mountain is making at First Priority Financial in Santa Rosa.

"Some people find it a little scary, but they find it's a great time to invest," she said. "When you're buying something at the bottom of the market and at least breaking even, you have nowhere to go but up."

You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.