'I can't flip this house'

NEW YORK (CNNMoney) -- Buy a home on the cheap and flip it for big profits? That dream is all but dead.

Sales of homes to investors have dropped by more than half over the past five years.

Plus, the number of those investors who quickly sell off those homes -- the flippers -- has fallen even faster.

This July, investors flipped only 50% of their purchases, down from 75% a year earlier, according to Tom Popik, research director for Campbell Surveys, which tracks housing trends for major banks and government agencies. They held onto the rest to rent out.

David Hicks, president of HomeVestors, the "We Buy Ugly Homes" company, says his clients are now much more likely to buy rentals than to flip -- 57% more likely than two years ago, according to a recent survey the company conducted.

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In Phoenix, according to Tanya Marchiol of Team Investments, which buys homes for individual investors, "Everything is buy and hold -- I tell my clients 'You have to look at this as a five-year hold, at least.'"

In the Boston area, "The rental economics make more sense than flipping," said Matthew Martinez, a real estate investor and founder of Beacon Hill Property Group.

The demand for rentals there has been on the rise, with rents up about 25% from a couple of years ago. Investors can buy and rent out the homes and start earning good returns immediately.

There are limited exceptions. In San Diego, according to real estate investor Tom Tarrant, the current pickings are good. Prices in some San Diego area neighborhoods are rebounding and that makes flipping viable there. "Some of these guys are killing it," Tarrant said.

In most cities, however, just the opposite is true. Prices continue to founder, down more than 4% from a year ago, and sales volume has remained about 40% lower than during the boom.

And that could continue to hurt prospects for a full housing recovery.

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Most real estate investors are individuals and small partnerships who tap their own assets. They use savings, retirement accounts and home equity lines of credit for the cash they need.

Flippers can turn that capital over several times a year, but if they buy and hold, they deplete their cash and can make no new purchases.

"Cash buyers are driving the market these days," said Anthony Sanders, a professor of real estate at George Mason University. "Eventually, they'll run out of cash."

When that happens, they'll stop buying, reducing demand for homes, especially the distressed properties that are such a burden on the market these days.