Who is Buying Real Estate and Why?

I would like to start off by warning my humble readers that this post will not necessarily give a solution to the eye-opening news across the real estate industry. This post is meant to inform readers about lot absorption in California. Let's first look at the possible inventory to invest in today as it relates to the residential space. You have foreclosed single family homes, raw land, entitled land, finished lots, and partially built(vertical construction) subdivisions. As home foreclosures slow and investors start/continue to buy these homes at 60, 70, 80 cents on the dollar instead of the initial 10, 20, 30 cents that they were paying, we will see those investors spread across the market and leave the REO world.

Simultaneous to the small ball investors picking up foreclosed homes are the public home builders, developers and institutions that are investing at the single family project level. You have public home builders buying developments with a 5%(exaggerating a little) return in mind. They are buying for job security, keeping stock prices where they need to be... etc. And I'm sure, that in the back of their mind, they are reminding themselves that the more they eat through inventory the more a need is for them to be around! Developers are working with banks, builders and institutions attempting to create a 20%+ IRR. Through anything from fee build/develop opportunities with the banks to teeing up projects for builders to working with institutions for 90/10 equity investments on one-off deals. And you have institutions buying tapes of, well everything... REO's, development projects, backed securities... etc. One thing is clear, every player out buying dirt today is looking for something different. Every player has different objectives than they had at the height of the market. Though whatever the reasoning behind buying up land, absorption is taking place in the development world.

As time goes by and shadow foreclosures show up/get eaten up by the investment community there will be a need to build again. When that need arises those who bought at or below replacement costs will be receiving the returns that they were initially looking for. The most staggering part about those investments, is that they are, by in large, based off of a need to build... Not a need for another 2005 run in the industry. Make no mistake about it, there is not a cut and dry way to make money in the industry. However there is a very clear path of development and population growth.