Investors Rush To Auctions Before Foreclosures Dry Up









“Defeat may serve as well as victory to shake the soul and let the glory out.”
– Edwin Markham



Even though overall foreclosure numbers continue to decrease across the U.S. year over year, auctions have picked up in many states recently as investors grab remaining bargains.

The increases come amid questions about the path ahead. Some industry watchers see foreclosures and auctions winding down early next year. Others note many markets are already at pre-bust levels or expect foreclosures will still be getting mopped up in certain markets well into 2015 and beyond.

Some investors and flippers intend to go hard this year and then adapt their business strategies after 2015. For others, a foreclosure slowdown means little, because their time-proven tactics predate the property bust.

Savvy players are also specializing in certain types of properties aimed at specific buyers or renters — a strategy that helps them compete with big institutional investors that have been scooping up foreclosures.

Arlington, Va., flipper Lance Young says he buys houses “other people think are teardowns.”

He’s not afraid to gut a house and fix it, even spending six months on some flips. If it’s “truly deplorable,” he’s in.

“When you walk into a house and you smell urine, you’re really smelling money,” he says. Some homes “look really bad, but when you look closer, and you look at the bones, you realize the house can be fixed.”

Young flips rowhouses, condos, townhouses and single-family homes. But he operates exclusively in Washington, D.C.’s Beltway, selling to government movers and shakers, or the residents of “Imperial Rome,” as he calls the capital.

Price Gains Boost Foreclosures

Scheduled foreclosure auctions nationwide dropped 8% in January from a year earlier but rose in 27 states, including Oregon (up 326%), Connecticut (up 223%), Maryland (up 113%), New York (up 73%), and Nevada (up 73%), according to RealtyTrac.

It added that foreclosure auctions in New York were at the highest monthly level since October 2010 and scheduled foreclosure auctions in Nevada were at the highest level since February 2012.

What’s driving foreclosures and auctions? Price increases.

“When prices are falling, banks are much more willing to entertain short sales . . . as a way to cut losses,” says Daren Blomquist, vice president of RealtyTrac.

But with home prices now rising in many areas, he said, even if it takes six months to foreclose on a home “it’s going to be worth more (later) than it is today.”

Some investors have noticed the uptick. Alex Sifakis, president of JWB Real Estate Capital in Jacksonville, Fla., says he’s seeing an increase in properties coming to auction, but he hasn’t been buying at auctions recently due to heavy competition from institutions, which have driven up prices. Instead, he’s been finding potential sellers through mailings, billboards, and directly approaching distressed owners. Still, if more properties become available he’s willing to reconsider sourcing properties at auction.

Opportunities In Confusion

Other investors enjoy sleuthing out auction gems — and beating the competition.   Very few people know how to play the auction game,” says Doug Clark, a Salt Lake City flipper and host of ABC’s “Big Money” TV show. “What I’m good at is sifting through them … researching all the background details on a house.”

There can be opportunity in confusion, as when a description on a trust deed might be wrong, he says. And that might be an advantage, because it might limit competition for a good property. “People might think the house is worse than it is.”

Although he’s based in Salt Lake City, Clark’s market goes well beyond the local area. He’s selling some of his flips and rehabbed rentals to investors in Australia, Singapore, New Zealand and England.

“The world has figured out that the U.S. is on sale,” he says, adding that U.S. properties are “safer real estate investments” than properties in many other countries.

But shifts are coming. Institutional investors just recently slowed purchases, says RealtyTrac. And the foreclosure flood? “With the trajectory we’re on now, we see the overall foreclosure activity numbers at pre-housing crisis levels by the first quarter of 2015,” Blomquist predicts.

However, he expects some markets will trail the national trend.

Beyond Foreclosures

Gus Faucher, senior economist at PNC Financial Services (PNC), believes foreclosures will decline nationally over 2014 and return to their historical averages in 2015.

“Rising house prices will also help reduce foreclosures, with fewer homeowners underwater on their mortgages,” he predicts, adding that job and income gains will improve the situation too.

“And the extremely high-quality loans that mortgage lenders have been writing in recent years will have very low foreclosure rates.”

Are the salad days over for flippers, as foreclosures wind down? Not according to Young, who’s been flipping since 1987.

Location and purchase price are keys to any flip, he says, regardless of how you buy it. “I always tell people: Don’t get set on just foreclosures.”

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I am a successful Commercial Investment Real Estate Broker in Arizona now for 20 years and I worked with banks and their commercial REO properties for 3 years. I am also a commercial landspecialist in Phoenix and a Landspecialist in Arizona.





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