Homeward Bound

At Capsource, Jolley and three partners have a portfolio of about 30 single-family homes in Las Vegas. They're looking for more, and while there is competition, the seller is often a bank or lender, meaning foreclosure is already complete and investors can negotiate with an institutional owner rather than an individual seller.

"It's difficult to call the bottom," Jolley says. "But it certainly feels close. Inventory has declined, sales have risen. But pricing is still on the decline. When pricing stabilizes then we'll know a turnaround is under way."

Leonard Baron, a professor at San Diego State University, has made 60 offers in the suburbs of San Diego during the past six months. Some sellers refuse to negotiate, he says. But he expects to succeed in closing two purchases in the near future: A single-family home for $200,000 (down from $435,000 in 2005) and a condo for $95,000 (down from $175,000 in 2005).

"Those are huge price drops," Baron says. "But keep in mind 56 of my offers were rejected. And the new prices reflect the current market."
 
Baron mostly made offers on foreclosed properties, which he characterizes as a "big appeal" for investors who want low prices and have time to work through the red tape or bat around negotiations with an institutional seller.

He says he plans to "buy and hold" the properties he is buying, rather than try to renovate them and sell them quickly. Because prices have fallen so far, he can get rents that allow him to make money managing the property over time, rather than just hold and hope for appreciation as investors did during frothier times.

"The old rule was that you tried to get 1 percent of the purchase price per month in rent," Baron says. "Those numbers haven't been seen for a long time in San Diego. But they're out there."

In fact, Baron says he can make money off properties if he can fetch rents just 0.7 to 0.8 percent of the purchase price per month, of about $1,500 a month for a $200,000 home.

"It's tough to get loans now," he says. "But in San Diego, as long as a property has some redeeming qualities there will be multiple offers on it."

Jane Hodges is a freelance writer in Seattle.

© 2008