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How much is that house in the neighborhood?
On the real estate front, we “won” a bid on a bank owned home (REO) but then we promptly exited the deal when the house turned out to be a lot worse off than anyone imagined. You could say that we had a not so friendly debate with the bank regarding their valuation method. So the past two weeks have not been very good to us or our business.
However, we have noticed an emerging trend. Granted, this is not a scientific survey or anything but it is something we have noticed in our business. Our purchasing plan targets a lot of REO’s or bank owned homes. We have noticed stiff competition when it comes to buying high value opportunity homes. Our definition of a high value opportunity is one where the bank asking price is set such that after some repairs we can resell the home for 85% of it’s after repair value.
On many occasions, this means that we are buying a house that is not habitable. However, this strategy provides a good investment opportunity for the party who buys the home from us. Anyway, there is a lot of competition for these types of homes. We are finding that these homes are selling in just a couple of days from when the home is placed on the market by the bank. OK, so store that bit of information away in the original computer database called a brain.
Now, if you look through any of the latest “real estate news” you might note that the reports seem to indicate that sales are “up”. Upon closer inspection, the sales numbers are including the investor purchases of REO properties and not solely targeting “regular” home owners looking to move. We think that economists are not including the fact that many purchases are actually attributed to investors and not “owner occupiers” or “normal homeowners.”. So the overall market foundation may not be as strong as some are being led to believe.
Some economists follow the Keynesian economic philosophy, while we tend to lean on the philosophy that an economy is only as strong as the confidence level of “regular people”.