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23 Apr 2013

Distressed single-family homes now apples to Wall Street bigwigs’ eyes


Distressed they may be but single-family homes at some of the most dejected and foreclosure-ridden areas of Florida are catching the eyes of Wall Street billionaires as the new must-have hedge fund additions. Major investors have started on piling up their portfolio with single-family homes. These properties, which have fallen victims to the less-than-healthy housing slump, are becoming more and more attractive for investors as they are seen to provide double-figure margins on resale and rents.

Some analysts, however, find it alarming that the same big ticket investors are snatching up these homes after the eventful and unfortunate housing bubble. Recall that easy credit and risky leverage from Wall Street started the real estate crash of the early 2000. Yet despite it all, many investors are now on the lookout for bargain deals in some of the country’s distressed housing market, including Florida.

The sudden influx of investors snapping up bargains at all directions gives a reason to the rising home prices despite unsavory unemployment rates and miniscule mortgages being issued by lenders. It is estimated that prices are up more than 8 percent that the past year.

The fast growing price at this niche is the ability of investors to settle in cash. Buying large portions of distressed homes by forking out dollars make it harder for traditional buyers—those who rely on new mortgage issues and credit qualifications—to compete with the market’s current top players.

RealtyTrac recently reported that one in 104 properties in Florida is in foreclosure, the highest in the country. While it may look unpleasant, big investors are certainly taking advantage and filling up their portfolio with distressed assets for future resale and rental prospects. This huge movement of cashing-in on the slump is driving up the prices of homes, which means a slightly brighter future for homeowners whose mortgages are higher than the market value of their residences. But this also shuts out those small players who are planning to get in on the bargains with the hope of building equity.

The promise of high annual gains is certainly attractive. Yet one cannot forget that the sudden influx of homebuyers eventually left the market crashing. This new trend in the housing market, while still a niche, might prove to be good for some. At some point, however, all good things must come to an end. While the losses of these big investors might seem petty at such an event, the all-too-familiar repercussions will be something for which everybody should be ready.

Selda Kirkan
phone: +1.954.3056424