Is REO inventory overpriced everywhere?

[Gary Marcotte]

I am a rehabber dealing mostly with REO properties and I am having a miserable time finding deals. I am up here in New England (northern MA/southern NH) and for the past 6-8 months the prices on REO properties have increased about 30%, making the margins on these rehabs very thin. I've even resorted to HUBZU to try to find something with no success there either. The Auction frenzy has these prop's bidding up well beyond my comfort zone. Anyway, just looking for a sanity check. Any other rehabbers experiencing the same thing or do I need to adjust my numbers?

[Liz S.]

Yes. For several reasons, some of which have already been mentioned:

• We're seeing a lot of "new" investors. Way to many of those shows on TV and alot of those fix & flip seminars sprouting up everywhere. Supply & demand.
• Low inventory. Don't let them kid you.. Shadow Inventory does exist. I am getting some new assignments many times that are over 3 years old, and some even sitting vacant for that long.. why? I think there's a bottleneck happening. Sometimes on a weekly basis colleagues & buyers ask me about homes they absolutely know are vacant and should have been foreclosed on years ago sit vacant & rotting with nothing in the works.

To consider:

• Yes, many banks are fixing themselves prior to market. I believe they would prefer to see first time buyers get the opportunity over investors who were initially had been snatching up all of the inventory (sorry guys). This is why many banks have policies similar to the well known "first look" initiative.
• Some asset companies are selling "occupied", and as-is. These can be challenging to sell.. i think as long as the investor has the patience to deal with this, is savvy in eviction process, or runs the numbers to include the legal costs or a "cash for keys" option for any existing occupant when considering potential profit, you might be able to score a better deal here.
• Consider making friends with your local REO broker.. ;-)
  I hate to go into too much detail, so as to hurt my own investor clients and increase their competition, but there are sometimes (a few) hidden deals to be found that they could make you aware of.