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Tracy King's Blog

Musings on local real estate deals

Hmm, where is that "shadow inventory" we have heard about for so long?First, check out Sean O'Toole's latest report http://files.foreclosureradar.com/foreclosure-report/May+2010+CA+Foreclosure+Report.pdf. Hmm, where is that "shadow inventory" we have heard about for so long? From several different sources I have heard that at most, 10% of scheduled trustee sales actually sell on any given day. The rest are postponed or cancelled. Most of these trustee sales have no bidders and they go back to the bank. This is what we call a foreclosure or REO, for Real Estate Owned.

The big challenge ordinary potential home buyers are unaware of (until they try to buy one of these incredible deals with a 3.5% down FHA loan) is that most of these deals are selling for cash to investors. And most of these investors are fairly large scale--that is, they may have anywhere from 10 to 200 properties they are rehabbing and flipping at any given time. They will buy a property for cash either on the courthouse steps, or from the foreclosing lender, "as-is," close in 10 days. Can your FHA deal compete with that? Or your 20% down conventional deal?

Is this a terrible thing, big investors snatching up these great deals so the poor first time buyer doesn't have a chance?  There is no one clear answer.

Consider that most of these deals are real fixers with all kinds of problems. A first time buyer generally doesn't have the money on hand to make the repairs that really need to be done. A first time buyer also doesn't have the knowledge or experience to take care of these problems in the most "professional" way. During the last big downturn in the 1990's, there were a number of people who did "flips" around Northeast Los Angeles and Pasadena/Altadena. They did the cheapest, ugliest jobs possible. They would stucco over sweet old bungalows, take out original hardware and fixtures, install the cheapest sink and kitchen cabinets, fixtures, vinyl and carpet, slap a coat of really cheap off-white paint on the interior and call it a remodel. Ugh! I can still smell the ammoniated stink of that nasty paint.

Today, there are teams of investors who are actually doing a tasteful, quality job. Look at Better Shelter as an example: http://www.bettershelter.com/. There are several groups doing this kind of work, and I applaud them. They are improving the housing stock in Los Angeles, making homes that real people can live in and enjoy for a relatively affordable price. They are actually making things better for the community as a whole and in some really forgotten depressing neighborhoods.

My dream is that I have a part in the transformation of blocks of stuccoed-over cottages with their ugly cement-block-and-wrought-iron-fencing into attractive modern easycare homes that present an attractive face to the neighborhood. Even if you don't remove the stucco but you make it smooth and contemporary with good windows with frames that add dimension and character to the exterior, even if you leave the fences in place but you stucco over the cement block and change the iron bars into maybe Trex rails or bamboo inserts--you could have durable beauty and privacy without it looking like a little jail! I'm excited because I see these things actually happening.

Have you seen any of these transformations around town?
Today’s version of Irrational Exuberance
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