From the wsj.com:

LITHONIA, Ga.—On a muggy morning earlier this month, Paul Fuhrman pried the screen off a window to get into a two-story house in this Atlanta suburb.

It was just another day’s work for the 43-year-old executive at private-equity firm Colony Capital LLC, based in Santa Monica, Calif. After buying the house for $120,000 in a foreclosure auction, Mr. Furhman and his colleagues wanted to check out Colony’s new investment—and broke in because they hadn’t gotten the keys yet.

Mr. Fuhrman’s sweat and dirty hands show how the business of buying foreclosed homes, renovating and renting them out is morphing from a largely mom-and-pop business into the next big thing on Wall Street. Investors who once chased only big-ticket deals now are buying houses one at a time.

“We went from hunting elephants to whacking ants with a mallet,” says Mr. Fuhrman, who found stained carpets, piles of discarded clothing, a broken door and signs of a recent living-room camp out by squatters.

Colony owns about 3,600 foreclosed homes, including 133 bought in the Atlanta area in one day, and officials hope to increase the firm’s inventory to 10,000 by next spring.

At first, many investors hoped lenders would sell foreclosed houses in bulk. But most banks prefer to sell one house at a time, figuring that approach will fetch higher prices.

As a result, the foreclosure circuit hasn’t yet produced a giant windfall for buyers like Colony, though executives say early returns are promising. Yields on rents from houses owned by the firm are 7% to 8%, higher than many other types of real estate. Purchase prices have averaged 12% less than Colony expected, which should make it easier to sell the homes or borrow against them and exit with double-digit percentage gains.

Anthony Myers, a senior managing director with Blackstone’s real-estate group, said that while the cost of operating in the foreclosed-home business is “incredibly high,” the buyout firm is well positioned. “We, like others, believe in the housing recovery and we believe there’s a great role for folks like us to come in, buy these homes,” he said.

“We are in the sixth inning of the opportunity to buy distressed homes and rent them out,” says John Burns, a real-estate consultant in Irvine, Calif.

Blackstone and Colony have been especially aggressive in foreclosure-racked Georgia. On a Tuesday morning, about 200 people gathered in front of the courthouse in Gwinnett County as an auctioneer opened the bidding on about 900 homes.

“Game on,” said Albo Antonucci, a buyer working for Colony, rushing to join the crowd.

One early sale was a three-bedroom, two-bathroom house in Duluth, Ga. Bidding started at $43,515. Colony had been studying a published list of thousands of properties to be auctioned this month in the Atlanta area, driving by the houses and doing price comparisons to determine the maximum price the firm could pay for each house and still hit their target yields.

Jay Byce, a portfolio manager for Colony, glanced at his binder. It showed Colony’s maximum bid price for the property was $71,000. After about 20 offers, he entered the bidding—and won the house for $53,400.

In Georgia, buyers of foreclosed houses usually pay on the spot. Mr. Byce turned to a colleague who held a locked plastic case full of cashier’s checks. In all, Colony had brought $3 million in checks to the courthouse. On the same day, 52 Colony employees were bidding on homes at seven different county courthouses in Georgia, and spent a total of about $9 million.

The surge in interest from financial firms has boosted foreclosure sales. About one-third of homes in recent foreclosure auctions in Gwinnett County were sold, up from 15% six months to a year ago, estimates auctioneer Doug Hardegree. Unsold homes go back to the lender.

The arrival of private-equity firms and hedge funds rankles smaller investors, many of whom try to quickly “flip” their purchases for a profit.

“If you’ve got four or five major investment firms bidding, you can’t get anything out there,” says Niana Hill, who sat in a courthouse cafe during a break in the auction. “I like 20% yields or more. I don’t like 10%.”

Colony executives say the numbers look fine to them. Once the private-equity firm spends about $11,000 to renovate the house in Lithonia, Colony expects to rent it for about $1,550 a month. After taxes, fees and other expenses, Colony investors should get a net yield on this house of 8.2% a year.

Colony has indicated it may take its rental business public or sell its homes after values appreciate. “When I look at other opportunities out there in the commercial-real-estate space, to get the same current yield, adjusting for risk, it’s very difficult,” Mr. Fuhrman says. “Of all the real-estate asset classes, this is probably the most liquid.”

A lady in this video said that these large investment groups are paying “retail value”:

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