Is the REO market drying up?

[Bienes Raices]

I'm kind of out of the loop on the REO scene since I bought my two properties in January and haven't made any offers since.

I've been told recently by someone that there are bidding wars on Fannie Mae properties now as soon as they hit the MLS, and that the banks in general are letting the defaulting owners stay in the house for very long times so the pipeline is slowing down. Is there any truth to this? (I know that it may be different in different parts of the country.)

[Joel Owens]

It is a common occurrence for the Government entities to give first look to owner occupants.This is true for HUD as well.

A lot will depend on what kind of buyer you are.If you are a flipper you will be using hard money or private financing.

If you are a buy and hold for rental then you need to look at if you are cash or using an investor loan.Banks like loans to properties that are in great shape.The problem is so do owner occupants using 100 down HUD program or FHA loans putting just 3.5% down.

In some cases the buyers are using down payment assistance form Federal,State,or local agencies so they have no money down.

All many of these owner occupants care about is "What is the monthly payment?".

Many are not concerned with cash flow or appreciation.They are looking at monthly payment and maintenance costs that could affect their quality of living standards.

This is why a huge mistake I see is investors trying to compete with owner occupants buying properties.What you want is a property in bad condition that nobody wants in a great area.You build in equity fixing it up and renting it out.The banks are willing to dump it cheap as they have limited buyers with cash ready to take the property on.

The last thing you want is to do an investor loan with a bank and outbid an owner occupant and pay too much for the property.Then when something comes up such as major repairs or a bad tenant you are losing money.

I can tell you from my REO brokers that list nationwide that inventory has all but dried up.The transactions are happening more on the short sale side now and many of these properties are in better condition than a foreclosure because the property hasn't been sitting as long and the current owners are still maintaining the properties some.Since the banks are working with them and the short sale process has been streamlined owners are getting less frustrated and doing less damage to the properties.