Greedy speculators are snapping up foreclosed homes in southern California, going where mere homebuyers fear to tread, The San Francisco Chronicle reports.
Real estate development companies are buying bank-owned homes, rehabbing them and renting them out while waiting for the housing market to recover, when they expect to sell the homes for at least twice what they paid.
The strategy highlights one of the main forces driving the real estate market now: vulture speculators swooping in for the kill.
Along with first-time buyers, they are a primary source of increased sales volume.
"We've seen an over-correction" in home values, said Gregor Watson, a managing partner of one such company.
"The rents we get justify $170,000 purchase price, and we're buying for $80,000 to $90,000."
Another company paid $84,000 for a three-bedroom, 1 1/2-bathroom home in Pittsburg that sold for $412,000 in 2005.
"We think the market is still going down, so we are against holding for an extended time," says Edwin Yeh, who is raising a $50 million fund to invest in foreclosures.
Foreclosures hit a record over the first half of 2009, swamping the market with homes and pushing down prices, the National Association of Realtors reports.
NAR also says that although the rate of foreclosure sales is down from 50 percent earlier this year, nearly one-third of the homes sold in June were foreclosures.
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