REO & Foreclosure Investors – Scavengers or Saviors?

June 13, 2011

by Scott Sambucci


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.