They started building their property portfolios by paying low-ball prices in cash for foreclosed bank-owned properties. But now, big investment companies have started to purchase new houses too, according to a report in Bloomberg BusinessWeek ("Private Equity Taps Builders as Foreclosures Vanish," by John Gittelsohn).

"Landsmith LP paid $32.5 million this month for 250 Houston-area houses that were built last year," the report says. "The firm, which began buying properties to rent in 2009, has 2,000 lots for new homes under contract and expects to purchase a total of 4,000 new houses this year, according to San Francisco-based Chief Executive Officer James Breitenstein."

"American Homes 4 Rent, a Malibu, California-based company headed by Public Storage founder B. Wayne Hughes, bought from Lennar Corp. (LEN), KB Home and M/I Homes Inc. in Florida's Hillsborough County, according to property records," the report goes on.

The big equity firms represent a new, post-crash business model: Cash-rich investors get the best prices on distressed properties, then manage the homes as rentals. One way to organize the business is in the form of a REIT, or Real Estate Investment Trust, which avoids some federal taxes for the stockholders. The New York Times described the business method in an April 2, 2012 story ("Investors Are Looking to Buy Homes by the Thousands," by Motoko Rich). "With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants," the Times reported. "Nobody has ever tried this on such a large scale, and critics worry these new investors could face big challenges managing large portfolios of dispersed rental houses."

But the practice takes on a different character in the market rebound, where inflows of cash are starting to push prices up. Big investors paying cash are having a big effect on the Florida housing market, the Sarasota Herald-Tribune reported in February ("N.Y. investment firm targets local rental properties," by Josh Salman). "Fundamental REO is the latest in a series of institutional investment firms that have embarked on buying sprees of distressed homes in Sarasota and Manatee counties since last fall — a vast shift away from the boom-time trend of individual investors flipping houses for quick profit," the paper reported. Fundamental bought 14 houses within a few months for a total of $1.4 million, the report says. Other private equity funds are doing the same thing: "Since October, affiliates of a giant New York hedge fund, The Blackstone Group, have bought 276 rental properties in Sarasota and Manatee," the paper reports. "And the Minnetonka, Minn.-based Two Harbors Investment Corp. has purchased at least 82 more."