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Buyers Hoping for Foreclosures Face Competition from Investors

Investors love foreclosures and short sales. The homes usually need work, which is ideal for flippers who fix and sell. They also tend to be less expensive – ideal for large companies that own thousands of homes to rent out. Buyers hoping for more affordable listings may be disappointed.

NEW YORK – Wall Street’s appetite for fixer-upper houses is insatiable, a challenge compounded by the task of finding shabby, out-of-date properties to renovate and resell for a profit.

For more than a year, foreclosure moratoriums blocked a major flow of fixer-uppers, starting with last spring’s lockdown. At the same time, regular home buyers with super-low mortgage rates are jockeying fiercely for the limited inventory of homes that make it onto the market. And for investors who do manage to buy a fixer-upper, the rising cost of labor and building materials are eating into profits.

Only 2.7% of home sales were flips in the first quarter, according to ATTOM Data Solutions – the lowest portion of sales since at least 2000.

Meanwhile, mortgage trusts, pensions, hedge funds, private-equity firms, investment banks and insurance companies are all eager to lend money to home flippers, enticed by yields ranging from 8% to 12% at a time when one-year Treasurys return less than 0.1%. And flip loans are often recouped faster than other loans, allowing investors to recycle their capital by offering or buying additional loans to boost profits.

Ed Stock began fixing and flipping houses on Long Island after the 2008 mortgage implosion. He seeks houses that need so much work that they don’t qualify for typical government-backed mortgages, but those types of homes have become scarce in the working-class neighborhoods where he once did most of his flipping.

As a result, Stock has started looking beyond Long Island, including to places like Florida.

“Investors like me, we’re like ants on a sugar hill all fighting for the same projects,” Ed Stock said to The Wall Street Journal. “It’s the greatest time to be in this market; it’s just hard to find the inventory.”

Source: Wall Street Journal (09/07/21) Dezember, Ryan

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