Bakersfield.com: Kern County news, events, classifieds, shopping, & search

Study: Bakersfield among top markets for rental home investors

BY COURTENAY EDELHART, Californian staff writer
cedelhart@bakersfield.com | Wednesday, Jul 13 2011 05:24 PM

Last Updated Wednesday, Jul 13 2011 05:26 PM

Bakersfield ranks No. 5 in the country for rental home investors, according to two real estate firms that teamed up to gauge the market.

The study by HomeVestors of America, a property-investment firm, and Local Market Monitor, a real-estate data firm, looked at current single-family home values and estimated the return on investment based on a three-year forecast assuming 2 percent annual economic growth.

"Investors are looking for the long-term," said David Hicks, co-president of HomeVestors. "There is no one, even among the most pessimistic of people, who believes prices are going to be this low three to five years from now. People want to live in California. People are going to move to California. And Bakersfield is going to benefit from that upward trend."

Bakersfield ranked fifth behind Las Vegas; Detroit; Warren, Mich.; and Orlando, Fla.

Los Angeles came in at No. 96 and San Francisco was the last of 100 markets ranked.

Property manager Deborah Gifford of Portfolio Property Management in Bakersfield said she had mixed feelings about the city's high ranking.

"We've got to be the cat's meow for investors, but the reason is that we have so many distressed properties here," she said.

Indeed, of 620 closed sales of existing single-family homes in the Bakersfield area last month, a whopping 65 percent were distressed --that is, either lender-owned or a short sale, according to the monthly Crabtree Report, which tracks home sale trends.

A short sale is a transaction in which a lender allows a borrower to sell a property for less than the balance owed on the mortgage.

Such deals have become commonplace in recent years because so many homeowners owe more than their houses are worth. Last month's $139,900 median sale price was down 52 percent from the market peak of $299,925 in June 2006, according to the Crabtree Report.

That means bargains abound, but you'll have to pay cash, or at the very least have a downpayment and a credit score high enough to get a loan.

Therein lies the rub for many local buyers hoping to purchase a primary residence. If they've got a foreclosure or short sale on their record, they're not likely to get financing, so the homes that would normally go to families are being plucked up by investors.

Gifford estimated about three-quarters of the owners of rental properties she manages live outside of Bakersfield.

Robert Savage, owner of property management company Bakersfield Property Solutions, said both local and out-of-town investors are attracted to the almost immediate profits to be made.

"There are a lot of good, quality renters right now because so many people have lost their homes, but they still have to live somewhere," he said.

A landlord with a strong portfolio can earn as much as a 12 percent return on a cash investment, Savage said, and that's not even counting appreciation down the road.

Even buyers who have to finance their purchase are enjoying interest rates that hover below 5 percent.

Keith Wasserman is president of Gelt Inc., a Tarzana real estate investment company that owns residential properties in Bakersfield and Phoenix.

"The prices in Bakersfield have been going up since we bought in 2008, when all the buyers were scared and the market was getting hit pretty hard. Of course that's the perfect time to get in," he said.

Bakersfield has a diverse economy and is positioned to come out of the economic downturn better than other parts of the state, so prices are likely to remain stable for the foreseeable future, Wasserman added.

"You've got a lot of oil and ag and health care jobs there, and population growth exploded a few years ago, plus a pro-business culture," he said. "Almost all of our properties are completely leased."