I get a lot of calls from clients of mine asking me to find REO packages as much as $20 million and higher. The boom among investors wanting to buy distressed properties has hit an all time high. Expect that all-time high record to be broken by the more patient investor in a year or even in 2009. The numbers came out yesterday...Foreclosures up by 30% from last year. Of course your dominant states are Ohio, Michigan, California, Nevada, Arizona, and Florida, but believe me, it is everywhere and deals are going to be plentiful no matter where you live. The fact is, REO property is growing every day more and more. It's not done or even close to being done yet.

Here's the skinny. Investors are taking advantage of distressed properties now more than ever. I am one of them. Homes in SW Florida that were $250k last year are down nearly 25%. You think I'm kidding? I'm not kidding. You can buy a brand new house in the area for $170,000. You think that's nice? Waterfront homes with direct access to the Gulf of Mexico last year were selling at about $750k. I can pick one up in the $400's today. But is this the best price I will ever get on these? Those that cannot afford the prices that they bought at last year and who's rates will adjust between now and next year will unfortunately, but likely, be a part of the foreclosure market. Those who bought adjustable rate mortgages last year, will see what we are seeing again today. Lenders such as JP Morgan Chase, Countrywide, Wells Fargo, Transland, Tier One, are going to be stuck with hundreds of millions of dollars of REO portfolio.

Most lenders aren't even negotiating below 75 cents on the dollar as of now. This will get change as time goes by and you will see more and more lenders settling for 50 cents or even less. Typically when a bank sells REO portfolio's, it is in fact that; a portfolio and from what I know most banks don't offer any less than $5 million per package. Here is where the rich get richer. Those with deep pockets will buy these homes originally bought for $250,000 and the investor buying the REO will negotiate a sale of about $140,000 per property. If the investor sells each home at $160,000, this is a monstrous profit for them. Us normal people will still be stuck with homes similar to those, STILL trying to sell them competing with the rich guy that bought cheap portfolios. Guess who is screwed? The end-user is.

That being said, you can expect a market such as SW Florida and Phoenix area, AZ to take another big hit, in my opinion, maybe as big as another 25%. Here's the good part. The hit will be segregated to sections where investors targeted in 2004-05. Cheap properties speculative on factors that are no longer in place or have been cancelled due to interest rates, cost of construction, or whatever, are in the deepest risk. Homes built with well water and septic systems are at risk. There is plenty of good inventory out there on public utilities to steer the current buyer toward those areas as the prices are similar. The condo market shares the risk with them as developers targeted investors to buy out their units to obtain a quick "pre-sell" which is needed for their construction financing. In most projects in these areas, I have seen developments 100% owned or contracted by the speculative investor.

Bad markets make good money. Although areas are not even close to rock bottom yet, if you select your property wisely, you can make money now, and not have to so much wait till later when the banks start selling REO's. Those with deep pockets, get your money ready because you will likely not make more money ever in your life as you can with the future of REO's.

So what does this mean for the average investor? You can still make money in real estate. Select wisely and negotiate your price until the seller vomits. You can do it! Don't be afraid to offend people out there, because that is just plain stinkin life right now. We do what we do for ourselves to better the financial success for our families. If you are looking for a preconstruction deal, target areas that desperately need housing such as the Mississippi Gulf Coast. Unlike other areas, construction money is desperately needed. This type of money is like finding a needle in a haystack. If you have resources for construction money, your competition is very low right now. Demand for rental units has never been higher in such a confine area...EVER.

To conclude....REO portfolios are going to be huge between now and the next couple of years. As the REO portfolios go up, market value comes down. We are not at bottom yet. The Fed lowered the interest rates again yesterday. This is a step forward in the right direction, but we are not in the clear yet. Average investors, take caution and negotiate on the price and pick the best location. Follow commercial activity. The worst markets are areas to start fishing in. Preconstruction deals can still be very good. Find the people with the right financing techniques and find the properties where competition is low. Due diligence these days is your best friend.

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