Investors are leaning towards a new single-family rental model, where they acquire traditional homes for rental properties versus distressed assets that come with steeper discounts and larger margins of error, said Rick Sharga, executive vice president of Carrington Mortgage Holdings.

Additionally, Sharga is beginning to see investors with an interest in buying traditional homes as part of their single-family rental strategies. This strategy contrasts somewhat with the prevalent attitude in the market that distressed properties offer the best value due to lower pricing.

Carrington has looked at the model shift from distressed properties to traditional homes and believes it can work, "although it needs to be done carefully and with very stringent due diligence," Sharga told HousingWire.

If investors approach traditional purchases correctly by scooping up market-priced homes in areas with strong rental demand, there is a likelihood of reasonable returns on rental income, Sharga said.

"And if the markets are likely to see home price appreciation over the period of investment, there's a good chance of profit on resale as well," Sharga said.

But the trend may be slightly different when dealing with individual or smaller investors in cities such as Atlanta, Detroit, Las Vegas and New York City, the Federal Reserve Bank of Philadelphia said at a conference Tuesday.

These smaller players are still grabbing distressed properties in large quantities within certain cities, the Fed Bank said.

Josiah Madar of the Furman Center at New York University share information on the Atlanta, Miami and New York City markets. While each city saw noticeable foreclosure declines, REO properties are still being acquired and individuals accounted for most of the REO purchases. Small investors came in second in terms of how much REO they acquired in those cities. The trends are charted in the graph below.

The domination of small investors in New York City was prevalent in 2010 and 2011 due to investors interested in multifamily properties.

However, Madar said current data shows a shift to large corporate investors in the REO-to-Rental space because the market has become more attractive.

Alan Mallach of the Federal Reserve Bank of Philadelphia noted the REO space is all about heterogeneity and how investor behavior is driven by economic variation between one market and the next.

While many large institutional players such as hedge funds are buying thousands of distressed properties, Mallach said this trend "is trivial" because the current distressed market is still dominated by individuals and small investors. 

For instance, from 2009 through 2012, investors in Las Vegas spent $20 billion in purchasing single-family properties. Many were small investors that came from all over the world, specifically China, according to Mallach.