I hope you know I’m not trying to give **you** a hard time. You do have access to capital though in the form of your own money and your partners’ money.

You are also turning the properties around quickly, and in that sense, you are not affecting supply/demand in any great way. You are also dropping prices to what the market can bear. My beef is more with the “deep pocket” investors who are willing to sit on inventory until they get the prices they want. Generally, they try to get the product to market ASAP, but I’ve seen them sit on them for months while they fix them up and market them at much higher margins. I’d rather see what you did here — just leave the house alone and **quickly** bring it to market as is, so that a new buyer can buy it at a more reasonable price and fix it up to his liking.

You might know that I have been looking at bulk deals and MBS deals as part of an investment group myself. Just like you, I’ve been watching this intently from the sidelines, and am getting upset that the PTB are causing the same problems all over again.

It’s just frustrating, as you know, to see things being done the way they are.

I absolutely wish you the very best, Adam, and sincerely hope you get out quickly while the other “deeper pocket” flippers (usually from out of town) get stuck holding the bag.

I will heartily agree with your point that if there was a more regulated streamlined process for REO properties then the “problem” would be solved. However our govt has taken about as wrong as a direction as they could wouldn’t you say? Rather then creating an entity such as RTC to basically take all of the homes and sell them publicly, they gave free taxpayer money to the banks and said, here you go! Take the money, take the homes, oh and by the way lets relax accounting standards.

So yes a highly regulated and visible mechanism for procurring reo homes, and then distributing them in a fair manner for sale would have been the fairest way to do things.

However that is not gonna happen.

I see no distinction between real and artificial demand. Demand is demand is demand. I add to the supply. Also I do not dictate price CAR. All I do is set an opening price and the market will determine the price. So to say that speculators drive pricing up is IMO an incorrect statement. If this home was not on the market, the result would be one less widget of supply, and one more buyer looking for other widgets.

Cara your points are on target. Going to auction is painful now because of the buying activity and we shake our heads at bidders who are bidding up the prices so high. They will get caught in a bind, it is not a matter of if but when. So yes we have passed and will continue to pass on homes that don’t fall in our range and that may kick us out altogether.

Going to the auction itself was exciting for the first 2 or 3 times. Now it is burdensime. You sit there for a few hours only to have the properties you targetted get bid up to a ridiculous price. You need to exercise the self control and lay off. Then you leave empty handed. You have burned 4 hours doing nothing. This is BY FAR the usual outcome. Like I said, we have been to auction probably 40 times and with only 7 homes you do the math. This does not even count the number of planned trips we had that got cancelled due to postponements.

When this market turns, it could turn on a dime. In fact looking at comps doesn’t even tell you what’s going on. Those prices were agreed to over a month ago. Nothing tells you anything but bidding, and what a seller will accept. Anything else is yesterday’s news.

We have a contract in on a SFH, for 10% under the most recent October/November comps. Seller’s were tickled to death by our offer. Where I am, prices are poised to go lower, but you won’t see it in the list prices. We could probably have gotten an even better deal in a few months, but we love the house, and plan on living there for a very long time, so we don’t care. Close January 5th.

Agreed, the trustee sales aren’t readily available to the general public due to the insane practices of postponing the sale dates for months at a time, and the delays in publishing the opening bids.

The trustee sales aren’t counted as sales either, at least not on the MLS, so the general sales counts aren’t inflated by them, nor the pricing. Not sure how Case-Shiller counts them though.

I know Jim is trying to open up the courthouse steps to regular buyers, but it is inherently a very risky business, and as Adam says (in a later video) if you’re buying for yourself you need to do a lot more due diligence (because you can’t average over many properties).

The fact that the margins are getting slimmer means (a) that “flippers” are taking some of the inefficiencies out of the market (b) that Adam may need to consider stopping sooner rather than later.

These middlemen are providing an expensive service by minimizing the risks to the new owner, but it’s a service nonetheless. As long as they are marketing the properties quickly, they provide no additional net demand. For every house they buy they also sell it. They’re creating higher price at auction for the banks, but no additional demand on the MLS market, in fact faster supply than a bank would. Win-win.

1. Because “real” buyers don’t have the same access to capital. Speculators often have access to capital via investment funds/pools. Regular end-users usually do not have this same access.

2. Because end-users are unfamiliar with the process (and the pros often have lots of experience at these auctions, often being familiar with the auctioneer, the general process and pitfalls, etc.). The o/o buyers don’t know if the bids are valid or if the banks are bidding against them. They don’t know all the details about title, etc. while the speculators often have inside connections at certain title companies and with clerks at the county recorder’s office.

3. Speculators are better able to out-bid end-users because they have deeper pockets. Owner-occupiers have a limit as to how much cash they can access at any given point in time. Speculators do not necessarily have these same limitations — again, most of the big-time speculators/flippers have access to very large pools of capital.
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And what would happen if “real” buyers had equal access to these courthouse steps buys, assuming they currently do not?

It’s not about o/o buyers having equal access, because that’s virtually impossible in a market where certain parties are regular buyers and owner-occupiers are going to bid a single time. The knowledge, connections, and access to capital will ALWAYS be in the investors’ favor.

Since your position is that flippers do not affect the market, a better question would be: what would happen to prices if speculators were not in the market? It is my personal belief that prices would be much lower than they currently are…and that would be a good thing because it would help prevent future price volatility and future foreclosures. Speculators are only able to sell for more because the o/o buyers in the “reguar” market have access to leverage via the mortgage market. The end users are forced to take on more debt than they would otherwise have to carry if the speculators were not bidding against them.
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I’m not buying this distinction between artificial and natural demand. The problem is inefficiencies in how the market works.

We’ll have to agree to disagree. It always boils down to supply and demand. If supply is artificially constrained (foreclosure moratoriums, loan mods, deadbeat squatters living rent-free, etc.) and if demand is artificially increased (via govt-backed mortgages, low down-payments, tax credits, artificially supressed interest rates, speculation, etc.), then the end users who buy in such an environment are taking much greater risks than they would in a free market environment. The PTB are setting up the next wave of foreclosures with the current programs.

Then why don’t they? You say the speculators/flippers have cornered the market, and I don’t understand what the real limitations are. And what would happen if “real” buyers had equal access to these courthouse steps buys, assuming they currently do not?

I’m not buying this distinction between artificial and natural demand. The problem is inefficiencies in how the market works.

In the housing market, “artificial demand” would be demand created by individuals/entities who do not intend to live in the houses (shelter being the one real reason there is ultimate demand for houses…heretical, I know).

Artificial demand is created by speculators who buy for the sole purpose of making a profit because they assume end buyers/owner-occupiers (real demand) will pay more for housing than the speculators did.