As prices tumble, investors return to Sonoma County housing market
Published: Sunday, March 29, 2009 at 3:42 a.m.
Last Modified: Sunday, March 29, 2009 at 3:42 a.m.
A growing number of investors are jumping back into Sonoma County's housing market, betting that plunging home prices have nearly hit bottom.
Just over 1 in 4 homes sold in Sonoma County in the first two months of 2009 were purchased by buyers who don't plan to live there, according to MDA DataQuick, a real estate data firm. These days, most are investors buying rentals, although some may be purchasing vacation homes.
For the past decade, investors have accounted for less than 19 percent of the home sales in Sonoma County. But buyers are discovering it can be profitable to invest in real estate again, as home prices tumble and rents remain steady.
Most are snapping up homes priced well under $300,000, which they hope to rent out for around $1,600 a month and still turn a profit after paying the monthly mortgage.
"It tells us that prices are attractive enough to bring investors out of the woodwork," said David Rendino, a property manager and real estate agent for investors. "Anytime you can buy a home at 20 percent down and have it (generate) cash flow is a great deal. This is a market we should never see in our lifetimes again."
Together with first-time buyers, investors are driving a surge of sales at the lower end of the region's housing market, where banks are in a price war to clear out a seemingly limitless supply of foreclosure properties.
"Investors are typically most active in areas where there are a lot of foreclosures," said Andrew LePage, an MDA DataQuick analyst.
Bill Rubach, a longtime Santa Rosa real estate investor, had not bought a rental property in more than a decade. But this year, he pulled money out of the stock market to purchase a pair of foreclosed homes in Santa Rosa in February and March.
The retired oral surgeon picked up the homes the same day they went on the market, paying $275,000 and $248,000. He had them leased in a week, and clears about $100 a month on each home after mortgage, property tax and homeowner's insurance payments.
"The homes had to be an exceptionally good value. Where you can find these really good deals, it actually pencils out with a positive cash flow, and I don't think you could say that in the last 15 years," Rubach said.
For more than a decade, investors largely stayed away from buying homes to rent in the county because soaring prices meant expensive mortgages that dwarfed rents.
The equation has changed in the past year. On one side, home prices have now tumbled 51 percent since 2005. Rents are the other factor, remaining stable as demand has so far kept pace with an increase in rental homes, property managers said.
Investors have moved into the market aggressively, often with enough cash to prevail over first-time buyers.
To improve their chances of turning a profit, they target houses around $250,000 and condos well under $100,000. Finding a bargain helps protect them against further price declines and a possible dip in rents.
"It's the impetus that keeps you working for the best price possible. You just keep hammering," said CJ Holmes, a Santa Rosa real estate broker.
The process is neither easy nor fast. Investors often look at two- to three-dozen homes over several months to uncover the best deals. Many come up short when buyers make multiple offers on a home.
"I'll tell people this, but the first time it happens they feel like they've been kicked in the gut," Holmes said. "You have to make the plan and work the plan."
Price was more important than location for Rubach, who looked for homes under $280,000 and in good condition. After losing out on a foreclosed home with a dozen offers that sold for $35,000 over the asking price, Rubach struck on the two Santa Rosa bank-owned houses.
"I feel very good about them," he said. "I wouldn't be doing this if I didn't think we were close to the bottom of the market."
He is staggered by how far prices have fallen and saddened by losses suffered by families who bought near the peak of the housing boom. His latest purchase, priced at $248,000, was sold to its previous owner for $510,000 just three years ago.
"I think I am helping the market by absorbing some of these homes and once they dry up things will finally stabilize," Rubach said.
You can reach Staff Writer Michael Coit at 521-5470 or mike.coit@pressdemocrat.com.
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