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Big investors pull back on housing

When housing crashed in a large way, big investors stepped in, both mopping up the mess and squeezing out big profit.

Now, with home prices rising and fewer distressed homes to buy, the housing trade is changing, and so are the players. The number of sales to investors increased in October from September, according to the National Association of Realtors, but the mix is different.

"We've seen buying activity slowing down among the largest institutional investors, and some of this activity (is being) replaced by mid-sized companies and individuals looking to buy and rent out single family homes," said Rick Sharga, executive vice president of Auction.com. "The asset class seems likely to continue to grow, but the share of inventory purchased by the largest funds appears to be shrinking."

House For Sale
Larry Downing | Reuters

In Atlanta, where there are still a considerable number of distressed properties for sale, the investor dynamics are strong but shifting.

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"The demand side, the buyer side of this investment has really never been bumpier," said Simon Frost, chief investment officer of Key Property Services, a Marietta, Georgia-based company that buys distressed homes, renovates them, re-sells them to other investors as turnkey properties and then manages them for those investors. "It has gotten a lot more unpredictable with respect to who's going to be buying in any particular month, given that the capital flows are not predictable and stable."

Frost said the bigger institutional investors have been more capital-constrained lately because they haven't shown huge profits yet to their own investors.

In turn, they've moved toward funding their purchases with debt. That means they have to do rental-based securitizations first to raise cash, before buying more properties. Cash flow is good on the properties they've already rented, but they still have a big backlog of homes to renovate and rent, which cuts into profit. Smaller investors are now buying some of these properties in both small and large portfolios.

Read More$1 million-plus home sales up 16%

"A lot of people are looking at portfolios from us," said Frost. "We still see the same people on the courthouse steps, just not as regularly as we used to."