For Some, Foreclosure Wave Means Opportunity

March 15, 2007 — -- A record spike in home foreclosures is sending shock waves through thehousing market -- but while many investors are running for the proverbialhills, others see an opportunity.

"One out of every three calls I get has something to do with theforeclosure-related market," said Greg Reiter, a North Carolina realestate broker and investor. "It seems like everybody and their brotheris a real estate investor at this point."

Irrational or not, there is real exuberance in the foreclosure market.The glut of distressed properties is, in part, the result of a meltdownin the "subprime" lending market. With more and more Americans unable tomake their mortgage payments on these risky, high interest rate loans --which are largely aimed at borrowers with poor credit -- investors arenow looking to pounce.

"There are literally thousands and thousands of bargains to be had," said Rick Sharga of RealtyTrac, an online database of foreclosure and bank-owned homes which has seen athree-fold increase in Internet traffic in the past two years. "We have properties from $2 million Beverly Hills homes to $5,000 fixer-uppers in rural West Virginia.

"As we're tracking the sale of these properties in various stages offoreclosure, on average they're selling at between 70 and 75 percent ofestimated market value, a 25 to 30 percent savings," said Sharga.

But buying a foreclosed property may not necessarily translate to aquick buck.

"In terms of the speculative aspect, I think you have to be extremelycareful," said Bill Barnhart, financial markets columnist at the ChicagoTribune. "There's sort of a new industry developed of people trying tobe bottom-fishers, if you will, in the real estate market."

Unlike a traditional foreclosure market -- which is driven by recessionor high unemployment -- the current rash of foreclosures is largely aresult of rising interest rates and stalled or, in some areas, fallinghome prices.

Those market conditions meant the subprime borrowers couldneither make their mortgage payments nor sell their homes at a profit topay off their debts, and those forces could now throw a wrench into theplans of would-be profiteers.