Investors Find Silver Lining in Real Estate Market

Nov. 2, 2007 — -- The news about the U.S. housing market has been pretty bad -- foreclosures are up at twice last year's rate, affecting one in every 196 households.

But for an intrepid group of investors and prospective homeowners, foreclosures spell opportunity.

"When we get this wave of foreclosures due to the collapse of the subprime, more consumers start looking at foreclosed real estate auction markets as an avenue for taking advantage of the market," said Crystal Wright, a representative of Hudson & Marshall, one of the largest real estate auction firms for foreclosed properties. "It's the silver lining in a depressed real estate market for the average real estate buyer."

Home auctions, held throughout the country, resell properties that have been repossessed by banks when owners fail to make good on their mortgages. That's been happening at a record clip as homeowners with spotty credit who bought with little or no money down have had their adjustable rate mortgages increased beyond what they can afford to pay.

And because lenders want to avoid the cost associated with holding on to an empty home for months, they are more willing to lower the asking price in order to sell it quickly. In turn, buyers are finding firesale prices at foreclosure auctions.

"There is some positive in the whole doom and gloom of the housing market, in that buyers who have been shut out of the market in the last five years now have an opportunity to buy a home and realize the dream of ownership or upgrade to bigger homes," Wright told ABCNEWS.com. "And nobody likes to see a home on their block sit empty."

Business has been better than ever lately, thanks to buyers who realize this as their chance to invest, said Robert Friedman, chairman of the Real Estate Disposition Group, a firm that organizes foreclosure auctions.

"It's a rare situation where rates are low and prices are low," said Friedman. "There's just a lot of lenders out there with a lot of inventory that they'd rather sell at a low price quickly, so they're using the auction method. This is a fantastic opportunity for [buyers]."

Realtybid.com, a Web site that auctions foreclosed homes only online, said business has tripled over the past six months, and predict that it will double again by the end of the year.

"Foreclosure auctions ... help the communities rebuild and gets inventory off the market," said Realtybid.com CEO Tony Isbell.

But some real estate analysts aren't as optimistic and warn that not all properties purchased in foreclosure will make a profit for the buyer -- much like they didn't for the first.

"We're in for some challenging times ahead, and I think opportunities are relative," said Charles Cohen, CEO of Cohen Brother's Reality Corp., a real estate investment firm in Philadelphia. "If it didn't work for the primary buyer, it's not necessarily going to work for the second buyer, the opportunist. I'd say buyer beware, and know there's jeopardy all around."

Experts do warn buyers to make sure the auctioned home has no outstanding liens or back taxes, and reminds consumers to expect that the properties will need work.

Foreign Investors Find Opportunities Here

And it's not just U.S. residents who are finding windows of opportunity in a seemingly defunct real estate market. Foreign investors, too, are leaping at the chance to get a piece of a real estate market that has long been one of the priciest.

With a weak U.S. dollar and consequentially better exchange rates, more foreign investors are entering the American real estate market just as Americans themselves are doing quite the opposite -- shying away from the market and struggling with their mortgage payments.

"We see a lot of foreign buyers because of the weak dollar," said Pamela Liebman, the CEO of Corcoran real estate company in New York, who said the majority of investors come from the United Kingdom, Italy and Korea. "We're on sale for them; they have a lot of buying power."

Liebman told ABCNEWS.com that so many foreign buyers are taking advantage of the American market that her company has expanded its international reach, sending more brokers overseas to tend to customers. This year, Liebman said, real estate has seen the largest influx of foreign buyers in years.

With experts predicting even more foreclosures in the months to come, consumers may find even more ways to profit from a faltering market in the months to come.