I just remember reading something a few years ago about how one of the reasons why some places that were hit really hard, including Arizona, Las Vegas, and Miami, were slammed because of an abundance of investor owed properties. Their buying frenzy made people think there were a lot of people looking to buy homes. So more homes and condos were built. Then they realize that all those people don't actually exist (just because you build 10000 units and sell them to 10000 investors doesn't mean there are 10000 people around to buy/rent them).
Then when things go wonky, investors are often the first ones to start dumping (and are often more comfortable and able to take a loss to get out quickly), flooding the market and dropping prices. Whereas most owner-occupied homeowners have reasons besides the value to hold on longer and tend to not start jumping until things get so bad that it doesn't make sense for them to stay.
I liken it to things like the Beanie Babies craze. High investor to "real" buyer ratios have a way of self correcting eventually.
There are countless horror stories about people jumping into the real estate investment biz during the run-up to 2005. I know of one in particular who who got stuck with a bunch of houses in Arizona. He bought them thinking he was going to fill a void, selling them on a lease-option basis to people who could not qualify for a loan. The future sales price was pre-determined, and then the crash came. Prices dropped below what he paid for them, and his tenants cancelled their options. I think he lost 16 homes to foreclosure.
Many others bought using equity from their homes, and then found themselves with both rentals and primary residences under water.
The market was going so crazy that investors were buying new construction and selling them for a profit before construction was completed. It got to the point where developers were selling to owner-occupants only.
It was quite a mess.
I think the risk is very different today because of a couple of factors. First, investors got burned and they still have the scars to prove it so they are being more cautious and the biggest risk takers are gone. Second, those investors who were buying as rentals were depending write-offs and appreciation to justify the negative cash-flow.
Today, with rents exceeding mortgage payments, and with so many people unable to qualify for loans, investors are less vulnerable.
There are investment groups out there buying up houses, including foreclosures at the courthouse steps, bank-owned homes, and short-sales, building portfolios and holding them as rentals, planning to eventually sell them when the market comes back.
Even if prices fall again, investors are making money on their rentals and have no reason bail.
