Profiting in a Collapsing Real Estate Market

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

- Warren Buffett

It’s no coincidence that Buffett, Trump and all of the millionaire tycoons make their fortunes in hard times. As history would tell us, after every depression, came a new wave of incredibly wealthy millionaires. What do they all realize? They realize exactly what Buffett said above.

Right now, the Real Estate Market has become a subject of fear. But for the investors who understand Buffett’s quote, the Real Estate Market has become a subject of wealth and opportunity. In fact, the Real Estate Market has never gave us such an awesome opportunity in history. Right now, the REO Home Market is, quite frankly, amazing. We have the ultimate motivated seller, the Banks. And not only that, but our motivated seller has A LOT of properties and homes. And we really mean A LOT of homes.

June 8, 2009, the number of homes in foreclosure skyrocketed to over one million. As of January of this year, RealtyTrac reported a total of 1.50 million bank-owned properties for sale. But that’s not all, the Bank are also holding out on a large chunk of Foreclosed Inventory, known as “Shadow Inventory”. This inventory is enormous, and can perhaps be as big as 80% of the inventory listed for sale. This is what Makes the REO Market So Huge and so widely available.

It’s an evolving real estate market and right now, its the REO home market that’s changing so drastically. So what exactly is an REO home? Well REO stands for “Real Estate Owned” which is an internal term banks use to describe homes that have been foreclosed and that are now under their possession. Essentailly, they are “Bank Owned” homes. The same way banks repossess cars and than sell them off cheap at auctions to cut losses is the basically what they are doing with their REO homes.

Except now they are in an incredibly bad situation. Banks are now handing many of these REO homes away for pennies on the dollar. Why are they doing this? Well because they can’t afford not to. When the banks acquire a certain number of foreclosures in their portfolio, they are forced to get rid of them else the government steps in and kicks the owners from control. The owners want to keep making money, so that’s the last thing they want – the government to control their money flow.

Right now, foreclosures are pouring in at a rate that banks can’t nearly keep up with. This has a lot to do with their selfish acts in 2002, 2003, 2004, and 2005, making a lot of bad mortgages that they knew was no where near possible for the people to actually pay. These bad mortgages however, increased their own lending power and stock value. Now its coming back to bite them and the entire economy in the butt. The hundreds of thousands of mortgages that were authorized by the banks were set to detonate in 5 years. This is why we began seeing the foreclosure bomb explode in late 2007 and throughout 2008. But that’s nothing. Our banks in their god awful greediness manufactured more of these 5 years mortgage bombs in 2003 than they did 2002. More in 2004 than they did in 2003. More in 2005 than they did in 2004. It’s a wonder why no one stopped them sooner.

But all is well. By doing this, the Bank has put themselves on their knees making them the ultimate Motivated Seller and with plenty to sell. This is why the REO Market is so spectacular. You can literally find REO homes for pennies on the dollar, if not pennies in your pocket. Banks, especially during quarter closing and the end of the month are just slashing properties from their portfolios to keep the government off their bakcks. And through all of the REO’s being tossed left and right, occasionally, there’s a Gem of an REO home tossed away as well. We here at ezREOhomes find those gems and put it in the hand of our investors, and in the hands of a proud homeowner.