Thursday, December 20, 2007

Record Number Of Foreclosures In California, But Investors Are Not Buying

Last month the entire state of California had 12,282 properties go to foreclosure auction, but only 321 of those were actually sold, according to a recent article in the Modesto Bee. In Modesto, Merced and Stockton, there were 1,336 properties auctioned and only 17 actually sold.

At first glace these numbers appear rather shocking; how could things be this bad for foreclosures in California? When one remembers, though, how much housing values have gone down recently, and the fact that lenders typically submit a bid at least in the amount of how much they are owed, it makes sense. But according to the story in the Modesto Bee, lenders are willing to accept much less than what is owed--practically anything to move the properties at this point. One example in the story was a house being auctioned with an opening bid of only $301,500, even though the bank was owed $537,000. No one bid on the property and it was returned to the bank. That appears to be a discount of $235,500, so why didn’t anyone bid?

Chances are the house probably wasn’t worth $301,500, once you take into consideration the cost of repairs and so on, and that’s likely why no one bid on it. For most of these houses, that is probably the case, but it seems rather unlikely that there are not some good deals to be had. Out of more than 12,000 properties in California there have to be more than 321 good deals, especially with the discounts banks are willing offer right now.

The fact of the matter is many people are simply frightened to death by the real estate market right now, so there is much less competition for these deals than there used to be. That should be great news for investors: less competition means better deals are available. Since the market is still iffy at this point, the best strategy seems to be buy and hold, so if you can find a nice cash flow property and hold onto it for a while, you should be in good shape. While there might be some good fix and flip opportunities as well, they would come with a large amount of risk at this point. If you choose to go that route, just make sure you cover your bases and have a few different exit strategies in the bag, just in case.

For more foreclosure market information read our top 10 foreclosure markets for 2007 article.

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