I have noticed an interesting trend developing lately while evaluating potential investment properties.  Over the past 2 years, when searching for comparable sales for property evaluations, the recent sales could be broken down into 2 easily identified groups: retail sales & Bank/HUD/VA/Sherriff Sales.  The retail sales were always noticeably higher than the other category & represented the highest possible value of your investment property.  This concept is obvious to most, due to the fact that retail homebuyers generally buy homes in move in condition while investors buy houses in need of repairs at a discount in order to profit from improving the properties.  The thing that is not so obvious is why this pattern is changing.

What is changing is that these 2 formerly distinct categories are now merging together.  As the public has become more aware of the housing market & foreclosure crisis, every retail homebuyer is now trying to get a good deal when they buy a house.   Everyone wants a foreclosure house because everyone wants a good deal.  And many realtors who had never before dabbled in Banked/HUD/VA houses now are doing so out of necessity.  The number of HUD listings is currently a historically very low number, not because of a lack of HUD foreclosures, but because retail home buyers are purchasing HUD owned homes like never before.  HUD houses are unique in the fact that they are only available for owner occupant buyers for a certain number of days before bidding is opened up to all buyers (investors), so that adds to the retail buyer appeal. 

The reason this market observation is important is because when retail buyers purchase Bank/HUD/VA owned houses at a discount, these sales are the new retail comparable sales!  As retail buyers continue to hunt for good deals, the sale transactions are getting lower in price, thereby lowering the amount an investor can afford to pay for a house and still make a decent profit margin. 

One factor that likely contributed to this recent trend was the several month foreclosure freeze by many of the large banks.  This limited the number of Bank-Owned homes hitting the market in the last few months, so unless the house was really dilapidated, sellers weren’t as desperate to accept very low (investor) offers & held out for slightly higher (but still low) retail homebuyer offers.  The good news for investors (but bad news for the price of homes) is that the foreclosure freezes are now over & there is a stockpile of Bank-owned homes that will be hitting the market in the coming months.  I expect this to result in a feeding frenzy for investors for the rest of the year, at least for those who have the cash and/or financing in place.  To assist investors in taking advantage of this historical time in the real estate market, Ohio Rehab Loans is now offering 15 month rehab financing at 8% interest and 3 points for qualified investors.  Anybody looking to take part in this once in a lifetime investing opportunity, please give me a call and I can pre-qualify you over the phone. 

In summary, the bad news is that comparable sales & neighborhood values continue to drop in most areas, so investors must be conservative when evaluating potential investment properties.  The good news is that many great opportunities are just around the corner. 

Please note that this column reflects the opinion of Chris Knoppe.  Comments or questions can be directed to Chris.Knoppe@OhioRehabLoans.com. For more information about Ohio Rehab Loans visit www.OhioRehabLoans.com or call 614-433-0570.