Market is changing fast in my area! Deals are hard to find. Are you seeing this in your area?

[Michael Woodward]

I've been a fix & flip rehabber in east TN for about 10 years now. I've seen a dramatic change in the availability of distressed properties over the past month or two that has me a little concerned. Good rehab projects have always been fairly easy to find but very recently it's like the spigot was suddenly turned off. I'm wondering if anyone else is seeing this in their area and what your thoughts are.

I know that investor activity is high around the country right now but it's the lack of properties coming on the market that's most disturbing for me. I got a phone call this past week from a company that buys houses in bulk, directly from banks across the country. He was asking if I was interested in any of their wholesale deals in my area. This confirmed a suspicion that I had over the past few weeks that banks were unloading their properties directly to large investment companies instead of putting them on the market themselves. I don't fault the banks for wanting to unload in bulk and I don't fault the investment companies for making a profit but I see a real problem developing on the horizon from this.

The problem is that the investment companies don't add value to the properties. Their profits are taken entirely from the transaction where the bank releases the property back to the public which is typically where the rehabbers make their profit. If the rehabbers can't make money fixing the houses, the houses won't get fixed. The large investors aren't going to get into the business of fixing the houses, so distressed properties will sit in their distressed condition even longer. That brings more negative pressure on neighborhoods and the market in general but, more importantly, it cuts the heart out of the urban/suburban blight recovery (i.e. puts me out of business).

Initially, I considered these investment companies as typical wholesalers (which are good for rehabbers because they bring them deals) but unlike "typical" wholesalers they want to make $10k to $15k on each house instead of $2k to $5k a "street-level" wholesaler would expect to make. Those numbers don't add up........not in my area anyway.

I'm very interested to hear your thoughts about this.