Jergler: All-cash buyers pump up the market, but may hurt other buyers

Cash is king in the real estate market throughout Southern California in general and in Orange County in particular, where thanks to falling home prices, more people with the means seem interested in plunking down a lump sum and getting a home free and clear.

But many of these buyers aren’t just people in search of the American Dream in a field of falling home prices. They are cash-bearing investors looking to buy, and often flip, properties.

And a large number of these buyers may be foreign investors banking on an eventual rebound and the ebb and tide of the greenback, local market watchers say.

The upside is these buyers may be giving the languishing market a small boost. The downside is they are out-competing the traditional buyers who wish to test the market, experts say.

All-cash buyers in a down market looking for foreclosed or real-estate-owned, or REO, properties on the cheap aren’t new market fundamentals, but indications are the trend is gaining momentum and the type of investors coming into the market with all-cash is broadening.

“Last year, 28% of all sales in Orange County were for all-cash,” said Gary Watts of Impact Real Estate in Mission Viejo. “Last month, in all of Southern California, the all-cash sales represented 26% of purchases.”

Watts, who regularly gathers and presents his data at Orange County Assn. of Realtors’ meetings, said that based on what he’s seen and what he’s heard from his colleagues, many of these all-cash buyers are seeking comparatively safe investments from abroad.

“There is no doubt that foreigners are coming into the market and paying all-cash because unless they have established U.S. income and have tax returns, the lenders will not give them a loan,” Watts said.

Watts said that some foreigners are buying REO properties for all-cash “because the rate of return on these properties as rentals is greater than any rate they can get in the world on their liquid money.”

In doing this, these investors are making two bets: The value of the depressed REO property will appreciate, and the value of the U.S. dollar is low now, Watts said, adding, “therefore when they sell in the future, they not only expect a gain on the value of the property, but then if the dollar rises, they get a double bang for their buck.”

As for domestic investors, they are paying all cash-because the stock market is too volatile. And, like their foreign counterparts, they enjoy a healthy return on investment with today’s rising rental rates.

“These investors see increasing rental rates in the future, due to the depressed economy and massive foreclosures forcing previous homeowners into the rental market,” Watts said.

Linda Reynolds of Newport Beach-based Teles Properties is not only noticing more all-cash buyers interested in buying homes with the aim of renting them, but these inventors are increasingly seeking existing rentals.

“I am seeing more people wanting to purchase a rental property, which seems to be a good sign,” she said, adding, “there’s limited inventory in the multi-unit marketplace.”

There’s a downside to all of this.

“Investors with all-cash have been in the market for a couple of years, unfortunately they can beat out the entry-level buyer in the lower- to middle-price range because they have all-cash,” she said.

Despite interest rates that are among the lowest in the past 50 years, and lower home prices, these buyers “do have to finance their purchases, and that is why many may loose out to the investor-all-cash buyers.”

Aside from the individual investors, real estate agents themselves seem to be using their own money, or gathering in small numbers, and looking to buy foreclosed upon homes, considering it a quality investment in a distressed asset.

“I have seen a few small groups put together investors with all-cash to purchase properties, usually the distressed properties,” she said. “Overall, all-cash deals are showing up in all areas, and I am seeing more transactions in all ranges that are all-cash than ever before.”

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