MARICOPA, Ariz./ LOS ANGELES - Avid golfer Bob Cano came to the Arizona sunbelt to buy his dream getaway property and ended up picking up three more distressed homes as prices fell to half of 2006 levels.

Corporate investor Bob Schulman has set his sights on Las Vegas where his new fund is buying stylish homes in bulk, while mortgage industry veteran Peter Paul is scouring the national market for troubled home loans he thinks can be fixed.

U.S. property investors these days are smaller and say they are more willing to wait it out -- a stark contrast from the fervent flipping and reckless borrowing that characterized housing investment a few years ago.

Wall Street -- blamed for much of the bubble at the heart of the worst economic downturn since the Great Depression -- is mostly watching from the sidelines when it comes to homes. But it still dominates the market for bad, or distressed, loans.

For those with cash, time and room for risk, prices now are too good to pass up, providing incipient, albeit possibly temporary, relief for a market key to economic recovery.

From May of '07 to May of '08, the real estate market continued to plummet. So, I thought, this is a really good opportunity for me, said Cano, 57, a title and escrow industry executive from Washington state.

He has put his money in Maricopa, a desert city south of Phoenix that grew furiously during the housing boom to about 45,000 residents from just over 1,000 in 2000.

Offering a cheaper, more spacious alternative to Phoenix, Maricopa also has a high proportion of subprime loans and subsequently foreclosures.

The average home sale price in the Phoenix area, including Maricopa, hit a decade low in April of $125,000, according to MDA DataQuick, and has ticked up month by month to reach $134,000 in August.

Investors have started to return ... they see prices have fallen so far below the trend that they consider Phoenix housing to be a good investment, said Karl Guntermann, the professor of real estate finance at Arizona State University.

Across the nation, home prices rose for a third straight month in July, encouraging investors to buy property. The S&P/Case-Shiller index of house prices in 20 metropolitan areas rose nearly 4 percent in the period.

While much of the renewed housing market activity is being driven by first-time buyers lured in by low interest rates and an $8,000 federal tax credit, absentee buyers -- investors and second-home owners like Cano -- made up 41 percent of all purchases in the Phoenix area in August.

So intense is activity in some areas in the Southwest and California that distressed homes often receive multiple offers as first-time buyers compete with investors.

Two years ago, there were five people at auctions ... today, there are 70 of us, said Todd Kaufman, who turned investor in California real estate after 23 years on Wall Street, where he ran last ran the mortgage securitizations unit of failed bank Washington Mutual.

RENTING AND RENOVATING

Wall Street played a pivotal role in the housing boom and bust as investment banks encouraged loose underwriting standards to generate billions of dollars in loans. The banks packaged the loans into securities that were sold around the world, spreading risk through the global financial system.

This time, the foray into bank-owned homes is led by regional players with first-hand knowledge of local markets, while most on Wall Street are hanging in the wings, said Rudy Orman, a vice president at New York-based Marathon Asset Management, which invests in mortgages.

Back when home prices were on a seemingly endless upward curve, many investors borrowed heavily to buy homes, flip them with a quick sale and pocket a swift profit. But now many of those coming back into a broken real estate market are buying for cash and taking a longer-term view on returns.

There is a large portion buying to rent ... just for a couple of years thinking the market will come back more, said Janice Konkol of FirstTeam Real Estate in Irvine, California, where cash buyers abound.

Cano, for example, rents out the three Maricopa homes he bought in 2008 and 2009 for between $725 and $795 a month, and plans to hold on to them for up to 10 years.

The key is holding them. As long as you are getting a good return on rent, then it's a success, he said.

With low prices, flippers are also back in some blighted cities such as Las Vegas, the Nevada gambling hub where prices were off 58 percent mid year from the high in 2006.

We're buying in certain zip codes in Las Vegas that we know like the back of our hand ... they're master planned communities but they are great homes, said Schulman, chairman of The Montecito Companies, which is buying up about 100 bank-owned homes in the city -- some to rent, others to flip.

Key to turning a profit for Schulman is getting a steep discount by buying homes in bulk for cash and spending $3,000 to $10,000 in refurbishment, for swift resale. The strategy also works for Kaufman, who may spend even more to turn around a house gutted to the frame by his crew or the evicted owner.

Our design is to get homes sold quickly, and to improve them massively ... including the best marble floors, said Kaufman, who buys up to 25 homes at time from banks, short sales and auction.

Because Kaufman expects another two to four years of housing market turmoil, his market models do not contemplate price appreciation.

WALL STREET LOAN TRADING

One step removed from the brick-and-mortar assets, other investors including some veteran Wall Street mortgage players have been ramping up buying and selling in the underlying loans, again, drawn by steep discounts.

Peter Paul, who contributed to the expansion of credit to Americans in the 1990s by helping devise ways to package and sell mortgage debt to investors, has transformed his business from a loan originator to a buyer of distressed loans.

Turning to Wall Street, he teamed up with Mieko Willoughby, a 16-year mortgage veteran of investment bank Bear Stearns, to scour the market for sketchy loans that could be fixed, and then resold, for a $15 million starter fund.

He hopes to raise at least $200 million for new funds.

By buying up distressed loans and getting homeowners current on payments through refinancing or payment plans, Paul said his Headlands Asset Management, based in New York and San Rafael, California, is set to make profits of 30 percent.

LoanMarket, an Irvine, California-based online exchange for loans, is opening an office in New York next month to work with investment banks and funds that have taken control of the market, said Jeff Freud, LoanMarket's president.

With the machine for packaging mortgage securities still broken, loans have become a profitable place-keeper for Wall Street, said Rob Colby, Freud's partner at LoanMarket.

He estimated a buyer can make 20 to 100 times more on each loan today than when securitization was hot, given the degree of distress now in the market for property debt.

Wall Street is the buyer and the seller because no one is making new loans, Freud said. They are buying and selling and clipping the difference.

After a slow start, the volume of bids on LoanMarket more than quadrupled in August, he said, adding the stabilization of the housing market and the economy may have played a part as well as the discounts available from banks and funds that need to unload underwater investments.

In one example, a loan of $222,200 on a home in Riverside, one of the worst hit areas of California, sold for $80,000, or just 66.5 percent of the home's $120,300 estimated value now.

Dennis Regan, an investor with ClearVue Capital in Irvine who buys both properties and loans, said the time is ripe for his business with sellers more willing to accept the distressed prices he and other investors are offering than early 2009.

The current price for bank-owned properties is just 65 percent of market value. For loans, it's 59 percent, he said.

There is more realism on the side of the sellers, he said. The market has beat them over the head.

DOUBLE DIP IN PRICES?

But buyers still run the risk of seeing prices fall again.

While many forecasters are saying that the worst U.S. recession since the Great Depression has ended, unemployment is at 9.8 percent, the highest rate in 26 years, and it could rise.

More unemployment would swell the ranks of homeowners unable to meet mortgage payments and teetering on foreclosure.

And then there is the question of all the bank-owned property that has yet to go to market.

Online property marketplace RealtyTrac CEO James Saccacio said last month there remains an ample supply of property in the foreclosure pipeline and a record number of properties entering default or being scheduled for a public foreclosure auction for the first time.

Pressure on home prices could be severe if lenders dump unacknowledged foreclosures on the homes market, said economist Christopher Thornberg of Beacon Economics in Los Angeles.

Is there a chance for a double dip in home prices after this next surge of foreclosures hits the market? Absolutely, Thornberg said.

They could hit the market at any time from two months to two years ...The question is: 'When are those people actually going to get booted?'

Additional foreclosures would provide more supply to investors but the possibility that it could depress prices still further, and delay a recovery in prices by years or even decades, alarms some investors.

I'm trying to be cautious, said Mike Chouinard of Moreno Valley, California, who quit his job as gasoline refinery worker to invest in foreclosures full-time. I don't want to end up the one without a seat when the music stops.

(Additional reporting by Nick Carey and Jim Christie in California; editing by Mary Milliken and William Schomberg)

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