You would think the outside competition for Northeast Florida foreclosure bargains might have up and disappeared by now…but no! As The Wall Street Journal described it last week, the shrinking number of foreclosure opportunities hasn’t driven Wall Street’s professional investors completely out of the market. But new techniques are altering their approach.
Local Northeast Florida foreclosure investors have had to worry about a previous incursion by big national private equity investment firms. In the aftermath of the real estate bust, sales of distressed properties assumed an ever-larger proportion of real estate activity. National firms seized on the growing supply of cheap foreclosed homes as a ‘sure-thing’ trade for investment firms backed by money from private equity companies who wanted ‘in’ on real estate.
Wall Street knew full well that depressed real estate prices were a temporary phenomenon. They would swoop down, buy foreclosures en masse, rent them out, and wait for the bounce-back. Northeast Florida foreclosure investors suddenly had to worry about bargain-hunting by the national firms, instead of just the usual local competitors. It took agility and cash to compete with some very deep pockets. Even where they weren’t active, their impact was felt.
But by last summer, the New York Times was headlining “Investors Who Bought Foreclosed Homes in Bulk Look to Sell.” Where, at the height of the foreclosure onslaught, a full 50% of home purchases was made up of foreclosures and short sales, by this February, the percentage had retreated to barely 11%. Companies like Waypoint Real Estate Group began quietly shopping for buyers as they took their profits and tiptoed away…
So could Northeast Florida foreclosure investors breathe a sigh of relief, knowing the big boys had carted off their wheel barrows full of cash? You’d think so, but not so fast! The WSJ article describes a new phenomenon from outside. “Racing to Buy Homes Sight Unseen” was the headline. Enter the speed-based investors!
Just as trading firms had developed systems that made equity trading a competition between banks of computers trip-wired to trade at the speed of light, a milder phenomenon is emerging in foreclosure investing. According to the Journal, one example is the investment trust executive who no longer goes to public auctions to find buys. It described a recent morning in which it took him seven minutes to bid on a Georgia home “he had never seen.” He uses a quantitative data analysis program as a way to accelerate searches for the “dwindling supply of available homes that can be transformed into rental properties.” In other words, some of the big buyers are finding ways to stay in the market.
But Northeast Florida foreclosure investors don’t really need to throw up their hands. Although the data analysis programs are getting better, local knowledge and on-site evaluations should continue to give sharp Northeast Florida investors the kind of fine edge that national data maps and renovation cost generalizations can never quite match. It’s like the difference between a perfectly-engineered robotic customer service system…and a knowledgeable human: no contest.
Northeast Florida foreclosures may be less omnipresent, but without question they continue to represent great investment potential—and not just for the national investment firms. If you’ve ever thought you would like to hear more about today’s opportunities, call me for an on-the-ground analysis!