Steadfast FinancesVulture Investors Love the Real Estate Bubble & the 50% Plus Discounts

Vulture Investors Love the Real Estate Bubble & the 50% Plus Discounts

Filed in Investor Psychology , Real Estate 4 comments

For vulture investors, the real estate bubble is about to become an all you can invest eat buffet.

As a vulture investor myself, I’m finally beginning to see some additional capitulation in sellers (and bank owned REOs) lowering their asking price to meet lower demand.

Case in point: a 3BR/2BA condo, short sale, only 3 years old.

2006 price tag = $150,000

2010 short sale price tag = $64,900

Loss on investment = $85,000 or 57%

This isn’t the most extreme deal I’ve seen (foreclosure in same neighborhood went for $49,900), but in all seriousness, how do you think it feels to be this guy?

I’m not trying to pick on him, of course, but now that you’ve gone through the gut wrenching process of getting the bank’s approval for a short sale, you have more than likely accepted that you got duped following the herd by falling victim to the psychology of an investment bubble by buying at the worst possible time of a very over-inflated real estate bubble, and now, have to sell your no brainer investment that many Realtors said will “never go down in value” for 57% less than you originally paid for it.

Sort of reminds me of my no brainer investment in Cisco Systems during the tech bubble.

Personally, myself and a few others think real estate prices will continue to fall to revert back to historical trend lines. However, this is a market specific phenomenon, so what may be overvalued in one city might be undervalued in another.

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Posted by CJ   @   15 September 2010 4 comments
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Sep 15, 2010
3:12 pm

Facinating that you would refer to yourself as a vulture. I thought your charts on the investment bubbles were great. So you think gold will slow? I do but friends disagree and think it is stable growth. Look forward to reading more. And I definately agree that it is a good time to invest in real estate if a person has the ability to do so.

Sep 16, 2010
10:24 am
#2 Matt SF :

I’m cautious on everything, quite honestly. With so much uncertainty, whether the government will step in with a second round of quantitative easing or not, it’s hard to identify any sector that will stop depreciating (deleveraging) or will be re-inflated from stimulus funds.

My approach is to stay as diversified as much as possible, don’t take on unnecessary debt unless you have the financial wherewithal to service the debt repayments very easily, and keep a watchful eye for any vulture investment bargains from distressed sellers.

Vulture investors get an unnecessary stigma attached to them, in my opinion, because they take over a distressed asset from an emotionally charged owner. However, in the long run, it benefits everyone around them.

For example, this gent in the condo above doesn’t get a foreclosure on his record (assuming he’s able to find a buyer for his short sale), a Realtor and/or banker makes a few bucks on the transaction, the bank makes money on the mortgage, government makes a few bucks on property taxes from new owner.

So while it’s a big negative from the seller’s point of view, everyone else on the opposite side of the transaction, as well as the market makers, get to continue on with capitalism as usual and the cycle continues.

Sep 16, 2010
12:04 pm

Stepping in before the foreclosure is a big help to the homeowner. Private individuals who are able to invest in real estate at this time can be a tremendous asset to the rebuilding of the economy. The seller then can avoid the costly fees and hopefully walk away with a little cash in the pocket to start over.

Sep 21, 2010
1:58 pm

I’m with both of you on this one. The negative stigma is undeserved. I would much rather have a short sale that docks my credit score a fraction of what a foreclosure does and only stays on my record for 3 years as opposed to 7 years with a foreclosure. Just because investors have found a way to help someone in distress while still making a profit, negativity will follow.

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