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REO Investors Redeploy Ample Capital

FEB 7, 2014 10:25am ET
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Institutional investors in distressed single-family homes have been leaving some of the hot Western markets and spending more time and money in places like Knoxville, Tenn., and El Paso, Texas.

Price gains in the more-expensive markets have made it tougher to profit by buying hundreds or thousands of distressed properties and converting them to rentals. But investors can still easily raise capital for this activity, so they are just deploying it in new areas.

“Because of the securitization market there is still a very strong appetite to acquire more properties,” says Daren Blomquist, a vice president at the data firm RealtyTrac.

So while “they are definitely pulling out of a lot of Western markets, such as Phoenix,” he says, investors are moving into markets like Jacksonville, Fla., where 39% of all sales were by investors in December, up from 19% a year ago.

Knoxville is a new hot spot. Investors that purchase more than 10 properties a year were responsible for 32% of all sales in that Tennessee town, up from 10% in December 2012.

Atlanta remains a hot market but El Paso is suddenly on investors’ lists. Nearly 20% of sales in El Paso were by investors in December, up from 5% a year ago.

RealtyTrac estimates that investors acquired 341,000 single-family properties in 2013 and 54% involved cash transactions. But that includes regional buyers as well as local investors that purchase 10 to 20 properties a year.

Meanwhile, it appears investors will have plenty of inventory to choose from in 2014.

For years, banks and servicers held a lot of foreclosed homes off the market and they weren’t pricing properties to sell. But that began to change last year.

“Now they are pricing properties to move at trustee sales and auctions,” says Rick Sharga, an executive vice president at Auction.com. “We are starting to see more inventory actually get to the market at foreclosure sales.”

Auction.com sold 40,000 properties in 2013 through its online auction platform and trustee sales.

RealtyTrac and Auction.com are both based in Irvine, Calif.

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