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Investors Bottomfishing Great Distressed Property Deals

As policy makers, anodyne pundits, and dazed homeowners continue to wring their hands with worry, sharp-eyed investors have seized upon attractive investment opportunities available in US real estate.  Brought along by the confluence of a deleveraging population and a huge distressed inventory from recent poor lending practices, US real estate prices are retracting 10+ years of price appreciation, with some areas reaching back to the mid-1990s.

Domestic investors have been aggressively bottomfishing all the distressed properties available from overwhelmed banks and despondent mortgage investors.  Through a number of available channels, properties in once hot areas around California, Arizona, and Florida have dropped up to 90% from their peak in 2006-2007.  Many of the very best deals require all cash purchases, which leaves them out of reach of most individual investors.

However, for those who have held on to their cash, today’s housing environment offers a once-in-a-generation buying opportunity.  While prices of many regular sale areas have high potential for another 10-20% decline, the prices of many deeply distressed properties in second and third-tier cities have dropped so far, they can be paid off with just 2-5 years of savings for the average future buyer.  So, unless average income implodes by 50% over the next 5 years, these distressed property deals offer very sustainable values.

In addition, many of the distressed properties are in solid blue collar communities with regular and dependable renters.  Since many under-qualified buyers found themselves whisked into new homes with questionable lending practices and then unceremoniously evicted, they are leading the decline in rental

vacancies and offer a strong customer base for rental landlords.

With distressed properties at steep discounts, rental yields are now reaching 12-15% in certain areas, even within California.  So, while general real estate prices have further to fall over the next 12-15 months, now is a great time to pick up a few strong cashflowing properties.  Of course, as with all investments, knowing the right price is critical, so give us a call to get a professional at your side.

Michael Cheng