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Reading the Signs: Real Estate Investors Returning

MAY 9, 2012 9:49am ET
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You can’t work in a business for very long without learning to read the signs in the market’s trends. Having working in property preservation and eviction services for many years now, I can tell you that investors treat properties differently based on their expectations for the property’s most likely disposition. Watching how the investors react can give you clues as to how the market will move.

For instance, when a major bank agreed to bulldoze dozens of properties in the midwest, you can bet its property preservation partner knew about it long before. The investor will spend little if any money to maintain a property it expects to bulldoze into the ground. Likewise, when we see investors spending more money on properties, it’s an indicator that they expect to have buyers in the market to take those homes off their hands. That’s what we’re seeing today.

Investors will spend what they have to in order to keep REO in marketable condition, but they often work very hard to find asset managers who can sell the property in as close to the condition they find it in as they can. That’s just good business. Lately, we’ve been seeing investors spend money to not just maintain a property, but in some cases to make upgrades or improvements to them in order to make them ready to sell.

While Case-Shiller recently reported that home values are still falling in major cities around the country, they are not falling everywhere and some markets are actually enjoying some mild appreciation in home values. It behooves investors in those markets to ensure that their REO is competitive with other homes on the market there. This is exactly what investors appear to be doing.

There is other evidence that investors might finally find a good reason to re-enter the U.S. housing market and that comes from the GSEs, which are even now bundling up properties in the hope of selling them to investors for rental units. If that program takes off, we can expect to see investment flowing back into the market. While it won’t be the secondary market influx many are hoping for, it still might be enough to kickstart this recovery into high gear.

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