Minnesota Real Estate Investors Association, Inc.

Where is the next investment opportunity?

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Real estate is changing at an ever increasing pace.  A few years ago, you were hard pressed to find an abundant supply of Bank REO’s on the market.  Short sales were the rave and houses were still selling so most potential foreclosures were either going through a short sale or were sold before the banks got possession through foreclosure.

Then last year the banks all but stopped accepting short sales and the number of new foreclosure filings started to increase at record paces.  This caused a flood of foreclosures reaching the banks REO department and our focus shifted to finding good, no great deals by searching the MLS for bank REO’s.  We were able to acquire great deals on foreclosures and rehab them for resale.

Then last fall there were so many foreclosures that we were no longer able to resell the properties retail so the new focus became acquiring these bank REO’s for rentals.  This was a good strategy for many because we could buy the properties cheap and rents remained high.  This gave investors good cash flow.  And that is something we haven’t seen in many years.

Recently though we have been experiencing something quite different.  With all the foreclosures on the market, everyone wants in on the good deals.  That includes first time home buyers who have a huge advantage over investors.  Their 1st advantage is that they can get an FHA loan which only requires a 3% down payment compared to the 30% investors must put down. Their 2nd advantage is that they get an $8,000 tax credit just for buying.  Their 3rd advantage is that they qualify for the numerous first time home buyer rehab loans available through most cities and charitable organizations.

To top all this off, there has been a lack of new inventory on the market.  There are a few things that can explain this.  For starters, back in November 2008 Fannie Mae and Freddie Mac imposed a moratorium on new foreclosures while they waited to see what the government was going to do to bail them out.  The government never bailed them or us out and we are now in that period where those foreclosures, if they had happened, would be hitting the market.

Today lenders are now accepting short sales like never before.  They are also opening the bidding at the sheriffs sale at a price that is competitive to the current market rather than what is owed on the mortgage to encourage investors to buy the properties at the sheriffs sale so that the lender doesn’t have all the holding and marketing expenses if they took possession of the property as and REO.

All this has causes investors to change their focus yet again.  A lot of investors are now going after short sales because the lenders have finally gotten to the point that they realize it makes more sense to accept a short sale offer now, rather than going through the foreclosure process and taking the property back as an REO.  This has also created a whole new breed of lenders, called Transactional Lenders.  These lenders will borrow you the money for 1 day to close on your accepted short sale offer, provided that you have a buyer who has their own financing so that you can buy and sell the property on the same day, called a double closing.  So for the time being Short Sales may be were the deals are going to come from, until the market changes again, which at the rate things are changing these days, may be a soon as next month.



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