Everybody's an Investor Now

Zandi said: "Big major lenders don't see this as a positive development. Those who are in this industry for the long run don't want to see the market implode."

Federal banking regulators publicly warned this week that many lending institutions were loading up on high-risk loans. Government officials told lenders to be careful about home-equity loans and lines of credit because rising interest rates may make it harder for people to repay those loans.

Realtors group economist Lereah said tapping equity built up in primary residences is one of the most popular ways for middle-income Americans to finance investment purchases.

Mortgage broker Calem said if an investor has good credit, banks will do "no-document" loans, where a borrower's ability to repay the loan is judged solely by his credit history rather than on income and assets.

Price appreciation is a big part of real estate investing. "Let's say you're taking a loss of $300 a month on your cash flow, but appreciation is 15 percent on a $400,000 investment. You're making $60,000 a year in appreciation, but you're losing $3,600 a year on cash flow. Which is better?" asked investor Fairweather, who said he controls or manages hundreds of investment properties.

At some point, price appreciation is likely to level off. Historically, real estate tends to appreciate just a bit over the rate of inflation, providing property owners with a steady, but not spectacular, return on investment.

The rapid run-up in prices of recent years has led some to wonder whether a "bubble" has formed. And numerous economists point out that the number of investors is contributing to the climb in prices -- and some say that a big increase in investors could be in itself a sign of potential instability.

If prices fall, investors are considered more likely to sell their properties than owner-occupants. And a lot of properties could come onto the market at the same time, the reasoning goes.

"Everybody can't sell all together," economist Silvia said. "Somebody has to be buying. There's absolutely a chance that a whole bunch of people will try to sell at the same time. The game can change very, very quickly."

But is it true that investors always try to bail quickly if prices flatten?

Some local investors say they would sell if the market turned; others insist they plan to hold onto their investments.

"I'd want to sell while it's still a seller's market," said Kitty Bernard, an agent with Coldwell Banker Residential Properties in Reston who has teamed up with several colleagues to invest. "I wouldn't want to wait until it reverted completely to a buyer's market."

Tom Papadopoulos, a commercial real estate broker who also owns several residential investment properties, takes the opposite view.

"I'm a keeper," he said. "Why would I want to sell? As long as I have a tenant, I don't have any reason to sell. Real estate is about buying and holding. The way you make real money in real estate is to keep your properties for the long run."

Even though it has become a lot more expensive to invest-- and often involves negative cash flow each month -- there are still plenty of Washingtonians out there buying, according to agents, builders and loan officers.

Sarah Petusky, 28, and her husband, Matt, 33, who are the parents of a baby, are two recent buyers. They bought a $200,000 three-bedroom townhouse in Columbia late last year. For the down payment, they drew on a home equity line on their house in Olney. They rent out the townhouse, but are taking a loss of "a couple hundred dollars a month," Sarah Petusky said.

"We think the situation will turn around with values increasing," she said. "Our townhouse has already gone up about $30,000 in value."

Petusky said she and her husband would like to buy more investment properties, although they might have to look farther out than Columbia to afford the properties.

"We do my husband's 401(k) and we have IRAs," said Petusky, a stay-at-home mom. "Our townhouse is doing a lot better than any of those. We just look at it as another investment. It's probably the best investment we have, though."