REO & Foreclosure Investors – Scavengers or Saviors?

June 13, 2011

by Scott Sambucci

4 comments

Like ‘em or not, the market needs these investors to clear the housing ongoing housing glut.

From the article a Sacramento Bee article today – “Real estate scavengers flip foreclosed homes in Sacramento area”:

“Eighty percent of these homes will be flipped within a year. Typically, they will fetch about $30,000 – or 20 percent – more than the flipper paid.”

Why REO investors are good for the market:

  • They signal inflection points in the housing market.
  • FHA loans require only a 3.5% down payment – that’s $8750 on a $250k home (the current median ask price in Sacramento) – and a difference of $21,250 in cash investment to make the house marketable/livable.  First-time home-buyers don’t have that kind of savings laying around.
  • The $30,000 investment includes material, labor, and holding costs, and not all flips are quick.  Investors absorb significant risk and holding costs, taking up to a year or more between purchase and resale:

Sacramento "flips" - 6% of flips re-enter the market within 90 days, 9% within 180 days, 11.5% within 1 year

Here’s a link to the article.

 

{ 4 comments }

Rob Viglione June 13, 2011 at 5:42 pm

I have to reiterate your point about the risks REO investors take when assuming distressed properties. A 20% margin sounds good without qualification, but when factoring refurb and carrying costs, as well as risks in being able to sell within an acceptable time frame, 20% starts to sound pretty thin…

Boise real estate June 17, 2011 at 1:57 pm

Are homes really flipping that quickly now-a-days? I know up here in the Boise real estate market most people are too afraid to invest because of the economy, and who know that may be why the Idaho real estate market was at a crawl for awhile.

Carmen Brodeur June 18, 2011 at 9:14 pm

There is nothing wrong with investors flipping homes. They are an integral part of the market.

Christopher John July 6, 2011 at 2:13 pm

Investors can only sell the property at a profit when there are buyers available. Alright, investors do take advantage of being able to buy low enough to flip a house some time in the future, that's why they invest! I think the ones complaining the lowdest are those without the money to invest, or the guts to take the risk and make it grow. No guts no glory.

Comments on this entry are closed.

Additional comments powered by BackType

Previous post:

Next post: