Flippers' Advantage

"It's almost like an arbitrage," Chang said in a telephone interview from San Francisco, referring to the investment strategy that seeks to exploit price differences between related securities. "You buy the house at a discount with cash. Then you flip it almost immediately to the first-time homebuyer who's using a mortgage, simply because they were not able to buy at the foreclosure sale."

Lenders reject mortgage applications for foreclosed properties because the homes lack utilities, appraisals are below agreed-upon prices or deals take too long to close, said Thomas Popik, research director for Campbell Communications Inc. in Washington, which conducts national monthly surveys of 3,000 real estate brokers.

"The proportion of cash deals could hit 40% by the end of this year," Popik said in a telephone interview from his office in Nashua, N.H.

Turnkey Deals

One emerging trend is turnkey transactions, where cash buyers repair foreclosed homes and manage them as rental properties for other investors, said Elmer Diaz, former president of the National Real Estate Investors Association in Covington, Ky. Diaz said he works with four groups raising money to acquire properties in Fort Collins, Colorado; Sarasota, Florida; South Bend, Indiana; and Houston. The groups manage a combined 200 housing units, adding about 10 a month, he said.

"We find the deal, do the rehab, find a tenant and manage the property for the turnkey investor," Diaz said in a telephone interview from Sarasota. "Most of our investing is for the cash flow, not appreciation."

Not all cash deals are done by property flippers. About 55% of international buyers paid cash for their U.S. homes, according to an April 2010 report by the Realtors group. International buyers, including recent immigrants and temporary visa holders, accounted for about 7% of $907 billion in U.S. home sales for the 12-month period ended last March 31.

Empty Nesters

Empty nesters, or couples with children who have gone out on their own, often pay cash when they move to a smaller house, said Sam Khater, chief economist for CoreLogic Inc., a real estate information company based in Santa Ana, Calif. Vacation-home buyers use cash because it's hard to get a mortgage on a second home, while wealthy buyers often don't need a loan, he said.