Attention REO Experts

Foreclosures
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Attention REO Experts

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Member since 2008 · 15 posts · 0 votes

I am looking at all my options at getting started in real estate and still in study mode to focus my efforts. I live in So Cal so the price for entry in this area is high.

Lately I have been trying to think of where the deals might be next year...I realize nobody knows for sure, but I have a question to those who have had success in buying REOs.

It seems like the influx of foreclosures that are hitting the market are people who overextended with teaser rates and the properties are worth less than when they bought. Now that the teaser rates have reset to variable, homeowners and/or investors are just walking away and letting the banks foreclose and take back the properties. Well, if that is the case, I can't see how you can find a lot of pre-foreclosure deals in this market if these owners/investors have no equity when the NOD is filed. That being the case, all these homes then become REOs So, here is my question/ thought for discussion:

Is next year going to be the best time to buy REO properties since these houses are going back to the bank with no equity and the banks will continue to have an increase in their REO portfolios, therefore possibly having to discount at extreme rates to unload them off their books? In simple terms, it seems that this would have to be the course, but from what I am reading, it seems banks are pretty conservative and crafty and not giving away deals. When I read the "Hype" of investing in REOs, I hear "these banks are not in the business of holding real estate, so they are practically giving these properties away." Then I read something from another source that shows that banks are sophisticated in this process and are not going to be just giving away deals.

In conclusion, if the influx of the problems of this "declining" real estate market is from people that are walking away, willing to have a foreclosure on their records and had no equity in property, then I would naturally assume we won't see the best wholesale deals until these banks really feel the crunch of having to unload all these REOs off their books. Is this a correct thought process?

Please share your thoughts, opinions, etc. Keep in mind, I am a NEWBIE, so please be frank and direct as I am a sponge right now trying to learn all I can from those who have experience success in REI.

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    OP
    Member since 2008 · 15 posts · 0 votes
    19y

    Thanks for your reply K.

    You bring up some interesting points....

    I wholeheartedly agree and understand point 1, in fact it is the competition of all those smart investors that scares me the most, which is why I am studying so much right now!

    Point 2, do you really think that the legislation will help these people as a whole? You have made me think that maybe it will just create some more opportunities for investors to capitalize on, similar to new tax laws. Often times, smart investors find creative ways to capitalize on these and the people that the laws were written for don't always have the information at the right time to really see a benefit.

    Point 3, you would think the smart banks who have been down the REO road before would have already put plans in place months ago to be prepared for this.

    Thanks for your great reply! You have helped me to open my mind and think of possible new opportunities down the road.

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  • N/A N/A
    Member since 2008 · 74 posts · 0 votes
    19y

    I personally can't predict whether or not next year will be the best time to buy REO. I can however predict that there will be more, and they will be priced lower, pound for pound that is.

    Do note that when I say priced lower, I don't necessarily mean priced more favorably. A property that an asset manager may price at $300,000 today; he/she may price the same property at $270,000 next year - however lower in price, this would not be anymore favorable if the economy as a whole worsens.

    I recently attended a large REO conference where Freddie Mac's Chief Economist stated that their numbers indicate a 50% chance of a true recession in the next year. This would be in addition to the already sliding real estate market.

    In a nutshell, no deal is a good deal if end users can't buy. So to that end, who knows if it will be better or worse.

    I don't believe that legislation can help anyone that's already traveling down that dead end raod. It appears that most of the new legislation is designed to prevent/curb future mortgage industry screw ups.

    Next
    Banks will always try to get the absolute best price. But your initial assumption was correct; prices will fall when they start to really "feel the crunch" and have to "unload these properties". The only problem with that is, and as I stated before, will you be able to unload them. It's all relative, tit-for-tat, pound for pound, etc.

    Also
    Competition drives up prices. Will there be more investor competition next year or not. Many may come out of the wood-works because of the new "rock-bottom prices". Many may leave the business because of the scarcity of end buyers. Who knows... Plan your success one property at a time starting today.

    I say don't wait until tomorrow for what may or may not come. Play the markets smart now, and adjust as required later. Skilled investors will adjust and manuevor to make things happen regardless of climate. Those who wait, will always find more reasons to wait - as there seems to always be good reasons to wait. You just can't make any money by waiting. I'll get rich next year isn't the best way to start a get rich plan unless you have a crystal ball.

    Of course this is just my opinion.

    Good luck sooz

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  • N/A N/A
    OP
    Member since 2008 · 15 posts · 0 votes
    19y

    Will,

    Thanks for your reply as well. I love that I found this site as it is nice to hear detailed opinions/responses from those who work in the area one is interested in learning about!

    I see your point in not waiting. I'm definitely not going to wait...still just figuring out what will interest me and what I can start looking at. I just started this process a month ago and am doing my best to find all my available free time for research, (which isn't easy with a full-time job and a toddler at home!) I continue to stay motivated though with each bit of information I get, so thank you for sharing!

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  • Jeremy Meyer
    Member since 2008 · 6 posts · 0 votes
    18y

    I am a realtor in the San Diego area. My experiences with REO's (as a buyer's agent, not a listing agent) have been successful. There have been a few that were priced below market, probably to cause multiple offers, which it did. The banks usually take a while to get back to you on your offer (2-5 business days) but when they do it's downhill from there. Just make sure when you make your offer you are pre-approved. Not just a letter from your mortgage broker, but a full-on approval with conditions if it's from a broker, or a detailed letter if it's from a bank.

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  • Aaron Pfeffer
    Real Estate Broker · Los Angeles, CA · Member since 2008 · 73 posts · 11 votes
    18y

    One of the greatest ironies of modern times is how we all continue to be fooled by bureaucratic conglomerates. Maybe it's because we want to believe that since our lives are ruled by corporations that they MUST have all the answers, especially when they get themselves in trouble. Or better yet, that they are somehow smarter than the individual (which is my favorite irony considering the line of work we have all chosen). Or better still, that the government will always interfere for the better when the waters really get troubled...

    Not so much.

    Remember that these lenders are the same institutions that perpetuated the entire foreclosure mess themselves with agressive lending practices. And that this was the same government that let rating agencies like Moody's get paid by the banks BASED on how they rated securitized packages of CDO's. Whaaaaaaaaaaaaaat???!!! But let's not get too far off track...

    What I really mean to say is that the lenders have NO realistic plan for how they will handle not only this current wave of foreclosures, but the second, third, and fourth waves that will hit this coming spring, summer, and fall (especially in SoCal). Countrywide alone has 3800! REOs in SoCal that they've written off the books during December's tax period. What happens when April rolls around and they can't write those off again, yet they've just accumulated double that amount?

    Yes the lenders will move these properties uber cheap when they no longer have the reserves to account for how many are on their books. Yes they are hiring asset managers by the truckload to accomodate for ever rising inventory. Yes it's going to get quite bad to our benefit.

    No I have no idea how to pick one up for 65 cents on the dollar right now!!!!!!!!

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