Many investors in recent months have noticed a decline in REO and HUD inventory in their markets. While some may speculate that we are finally working through the majority of the foreclosure casualties from the real estate crash, many analysts believe the lack of foreclosures on the market has more to do with government intervention. Whatever the case, an investor who has been consistently buying distressed properties may suddenly find themselves looking harder for properties and finding less.
With fewer distressed properties hitting the open market, competition for these properties has begun to heat up. In my market, I’ve seen prices of properties in the under 100K range creeping upwards as a result of this dynamic. Interestingly, an overall market may still experience declines in real estate values, but the lower price point properties may actually be on the increase. Since most investment properties fall into the lower price ranges, it’s not uncommon for investors to see prices of potential investment properties increasing even while the overall market is decreasing or holding steady.
Understanding what prices are doing is key for any investor. It can be very tempting to set goals based on previous years and create a buying pace that may be difficult to maintain should your market change. I’ve seen investors who were so determined to buy as many houses as they did last year, that they end up compromising and buying houses for more than they should have. As an investor myself, I understand the expectation you can set on yourself to outpace previous years and always grow in volume from one year to the next. However, if the market changes from one year to the next, it’s important that you understand the changes and make necessary adjustments to your strategy and expectations.
The last thing an investor wants to do is buy investment property for the sake of buying property . . . rather than truly waiting for the properties that make financial sense. If you find that good investment properties in your market are harder to come by, perhaps that should be an indicator that this period of time may be associated with less (and smarter) investing.