Turning REO Trash Into Treasure

In the July 2012 issue of the Foreclosure News Report, we explore how investors are turning REO trash into real estate treasure.

Across America, beat-up, bank-owned foreclosures sit empty, sometimes for years, before a cash offer from an investor saves it from demolition — or worse, causing disfigurement and blighting that can affect neighborhoods for years. Hundreds of thousands of these decrepit properties can’t be financed because banks won’t lend money to regular homebuyers (or investors) to purchase them, leaving only cash investors as the only buyers.

With rents rising and home prices falling, demand for low-priced distressed property is growing.

Nationwide, investors are flocking to these trashed-out, bank-owned properties like never  before. The number of homes purchased for investment purposes rose a whopping 65 percent in 2011, growing from 749,000 investment purchases in 2010, or 17 percent of all sales, to 1.2 million home purchases in 2011, or 27 percent of  all sales, according to the National Association of Realtors (NAR).

“Rising rental income easily beat cash sitting in banks as an added inducement,” said Lawrence Yun, NAR’s chief economist in a prepared statement.  “In addition, 41 percent of investment buyers purchased more than one  property.”

NAR found that investment-home buyers in 2011 had a median age of 50, earned  $86,100 and bought a home that was relatively close to their primary residence  — a median distance of 25 miles, although 30 percent were more than 100 miles  away.

Today’s investor is a different breed from those of the past. Last year, half of the purchases were with cash and half were distressed properties (short sales or  bank-owned REO sales). Single-family rentals are a red-hot form of real estate  investing.

In Phoenix, Arizona, cash investors are driving up prices at third party courthouse auctions, and the number of homes for sale has dropped sharply, according to Ivy Coppo, a realtor in Scottsdale, who has flipped over 200 foreclosures in the last 10 years. Coppo said there’s so many investors in Phoenix that you can’t get discounts anymore at the Maricopa County  courthouse auction.

“There’s been a huge shift in the market,” said Coppo, a former flipper turned real estate consultant to hedge  funds and other Wall Street interests. “The auction has gone retail. There’s no more discounts at the courthouse steps. Bidding wars are driving prices up 5 to 10 percent higher than the list price.”

To read the entire story, start your subscription to the Foreclosure News Report today! Or get a free issue of the award-winning Foreclosure News Report newsletter.

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Related  News
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