Jim McClain Sr. remembers when hardly anyone showed up to purchase foreclosed real estate.
But the broker and owner of Greater Virginia Realty in Spotsylvania County said that lately it's not unusual to see 15 to 30 investors lined up on the courthouse steps, willing to shell out as much as $400,000 to $500,000 for property.
Career investors, he said, know they can spend that much and resell it for more in the area's hot market.
While many full-time investors are still basking in rising house prices, experts say now is not the time for average home buyers to try to keep pace.
"Right now [real-estate investment is] a rare commodity because there are so few homes that people can buy and try to live in," said Annette Roberts, real-estate agent with Re/MAX Supercenter.
In July 2005, the median sales price for a home in the Fredericksburg region was $335,000, according to the Metropolitan Regional Information System's online database.
The nationwide real-estate indicator shows that local prices have increased significantly every year since 2001.
Comparing sales each July, the year-to-year increase has been as small as 3 percent in 1999 and as high as 34 percent in 2005.
McClain said average home buyers might attempt one investment with those kinds of prices. But his company is seeing most buys from experienced people who already own a lot of property and have cash to spare.
And full-time investors aren't slowing down.
The National Association of Realtors reports that nearly a fourth of all the houses sold in 2004 went to investors. About 80 percent of investment properties are existing single-family houses.
Deb Angstadt, CEO of Chancellor Mortgage in Fredericksburg, said 25 percent of their customer inquiries were from investors before the 2005 summer selling season hit.
Real-estate agents say many investors are now coming from Northern Virginia or other areas that are priced higher than Fredericksburg. The profits from higher-priced markets can buy a larger amount or better quality of property here.
The median sales price in the Alexandria, Fairfax, Arlington and Falls Church area in July 2005 was $500,000, according to the MRIS database.
But those who continue to play the real-estate market are changing their strategies to be successful, Roberts said.
When the market has more houses for sale than people to buy them, prices begin to drop or become stable--known as a buyer's market. In a buyer's market more people buy property, rent it out to pay off their mortgage and sell it in two or three years when property values increase enough, Roberts said.
But McClain said the Fredericksburg region is on the upward side of a seller's market--when prices are high and there are more buyers than available houses. In a seller's market, he said, people can buy property, renovate it, wait just a few months and sell it for tens of thousands more than the purchase price--a practice called flipping.
More investors are starting to do that with new construction, McClain said. They sign a contract with a builder at one price. And they sell for a lot more six to eight months later when the property is completed.
Holding onto property is not as favorable when real estate is expensive because the costs of maintaining the house are not always feasible, Roberts said. And the competition for rental property increases, making it more difficult to find tenants.
Flipping real estate helps the investor make as much profit as quickly as possible before the market turns again. Roberts said that's the strategy serious investors have been using increasingly for the past five to 10 years.
While that strategy is making many investors happy, one result is that her company also has a lot of clients who are struggling to buy their first home.
"Investment is great," Roberts said. "I just feel for those people that do the best they can, but Fredericksburg just doesn't support their income."
A lot of people are moving to Caroline County because they can't afford the prices in Spotsylvania or Stafford. Others end up renting and paying $1,200 to $1,300 a month, because that's what the landlord has to charge to meet the mortgage payment.
But eight out of 10 times investors are outbidding the average home buyer, Roberts said.
"You've got to have money to make money, but it ends up hurting the little guy a little bit."
Now that interest rates are starting to increase, people nationwide have been talking about when the housing bubble will burst. There was a point in the late 1980s and early 1990s when many sellers lost money on their real estate because prices were decreasing, McClain said.
But many area experts don't expect this region to see a drop in property values, as other areas are starting to see. The migration and growth from Washington and Richmond, they say, will sustain the market.
"Any time you buy a property in this area the property is not going to go to a negative incline," Roberts said. "It just may not increase with the magnitude it has in the past few years. It will only continue to grow, but the growth will slow down a little bit."
But Ron Holmes, branch manager for Legg Mason Wood Walker, said people should be cautious about how much and what kind of real estate they buy.
"There are a lot of intangibles you can't really predict. There is definitely more risk in the market than there was," he said. "I think you need to be very, very aware of what you are doing. A lot of people go out and buy property, not really aware of the risks,"
McClain said he encourages beginning investors to plan for a low return on their property and hold onto it for a longer period of time.
"You have a significant amount of people who feel they have enough disposable income and wealth to just dabble in it, but they find they can't compete," he said. "The ones that do it full time usually have deeper pockets."
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