Business, Foreclosures, Investments, Mortgages

Real Estate Speculators: Obstacles in Neighborhood Redevelopment?

Many communities around the country have been at odds with real estate speculators who’ve abandoned their properties.

scottchan /

In some areas, they’ve become a new class of absentee landlords who often live out of the state or overseas. Comments from community officials in news reports indicate quite a few of these landlords have either slowed progress in redeveloped neighborhoods or reverted gains made.

“In some cities, speculators and vacancies essentially have turned the clock back on previous development successes, noted Harold Simon, executive director of the National Housing Institute,” in the Colorado Independent.

 Speculator Frenzy

Real estate speculators struck while the market was hot and helped to drive up prices during the housing boom. Some presumed the growth wouldn’t end. Condominiums were overbuilt in Florida driven by the speculators’ fervor. Also, the Financial Times described how some speculators were reeled in by “low” teaser rates.

“Prior to 2007, the underlying assumption was, build it and they will come,” Jeff Hardcastle, Nevada state demographer told the New York Times.

“California, Nevada, Arizona and Florida were among the states with the fastest home price appreciation over the last five years. This…attracted both speculators and home builders, a volatile combination that led to an over-supply of homes that was beyond the capacity of the local populations to support,” explained Doug Duncan, the Mortgage Bankers Association’s former chief economist in a statement.

“The market got overheated through speculative buying, because of the easy money that was available,” Larry Catlett of Liberty Realtors indicated in a Canwest News Service article. “You had people buying more house than they could afford.”

Ways of Abandonment

Some confident speculators acquired multiple unit apartment buildings or purchased more than one house. They’d flip the property to another speculator for a profit. When the rates reset to high levels, defaults rose.

“When this over-supply became apparent and prices began to fall, many of these investors simply walked away from their mortgages,” said Duncan.

Others acquired bank-owned foreclosed homes on eBay, through get-rich-quick companies or massed on courthouse steps during foreclosure auctions. Once the property was acquired, these speculators tried to flip them or rent them out before abandoning them.

Instead of abandoning the property, some speculators have kept the homes awaiting a change in the market but haven’t kept the property “habitable” or decorated.

Community Impact

Abandoned homes and dilapidated property can bring down property values and stimulate crime.

“For cities and counties, the problem is this: Foreclosed houses are accumulating and becoming blighting influences. Oftentimes, the houses sit vacant. They quickly deteriorate and attract ‘broken window’ problems that can drag down a neighborhood — the sort of problems that redevelopment agencies are often charged with solving after the fact,” the California Redevelopment Association stated.

Real estate speculators are among those blamed for interfering with redevelopment efforts in some Detroit neighborhoods.

“Public ownership of land alone isn’t enough to make redefining Detroit easy,” Mike Wilkinson of The Detroit News reported. “So many speculators have jumped into so many neighborhoods and picked up parcels for $500 or less that redevelopment could cost taxpayers millions of dollars to buy them out.”

What have you seen? Share an industry trend you’ve noticed.

Photo Credit: Scott Chan/ (

Foreclosures, Mortgages, Personal finance

Updates to Property Valuations and Abandoned Foreclosures

Updated property valuations may just be the key in reducing crime, decreased property values and additional costs to local governments related to servicer-abandoned foreclosures, according to the U.S. Government Accountability Office report, “Mortgage Foreclosures: Additional Mortgage Servicer Actions Could Help Reduce the Frequency and Impact of Abandoned Foreclosures.”

scottchan /

Servicers, such as banks, have walked away from foreclosures once they realize the cost to complete the procedure is much higher than the anticipated proceeds from the property’s sale.  When these foreclosures are abandoned, communities are often clueless because the servicers don’t have to tell the community the property is abandoned.  Befuddled homeowners find out the property is still in their possession along with responsibility for paying the debt, taxes and maintenance. 

If mortgage servicers were provided with updated property valuations before initiating a foreclosure on a property,  lower-value properties or those in areas more likely to face steep declines in value could be saved.

Abandoned foreclosures are often rare, according to the government report. They made up one percent of vacant homes between January 2008 and March 2010. These foreclosures are typically concentrated in economically-distressed areas and involve loans made to borrowers with lower quality credit. Vacant homes are often associated with abandoned foreclosures. They’re costly for the local government to maintain and demolish and often attract crime and decrease property value.

Communities try to mitigate the effects of these desolate properties but face delayed action.  Some resolutions community groups have tried include increased counseling to prevent borrowers from leaving their homes too early and asking servicers to list properties that are vacant on a centralized registry so they know where to focus their attention. They’ve also created land banks to increase incentives for servicers to complete instead of abandon foreclosures. 

However, these efforts, according to the report, require funds, may not be appropriate for all communities and may just encourage the servicer to walk away.

How do you think updated property valuations will help the abandoned foreclosure issue?

 Photo Credit: scottchan / (

Investments, Luxury lifestyles, Mortgages, Personal finance

Luxury Rentals: Making “Sound Investments”

Real estate agents reveal more uber-rich Americans are renting instead of buying homes.

krishnan /

In New York, rentals of $10,000 to $100,000 are on the rise, according to the New York Times. The luxury market there has been the slowest to recover from the housing market collapse. Brokers told the paper it appeared buying was not a “sound investment” to wealthy New Yorkers at this time, and it’s likely they didn’t want to put, “35 percent down on an apartment when its resale value still comes with a big questionable market.”

The upsurge in luxury renting is boosting profits for companies, such as Corporate Mansions. Owner Bill Lyons’ business multiplied from the distressed properties and vacant homes near the Las Vegas Strip in Nevada’s ritziest neighborhoods. Lyons’ business rents luxury properties to wealthy executives and A-list celebrity clientele for thousands of dollars per week. He and his team arranged deals with banks for homes and then resurrected the property, he told the Las Vegas Business Press. Lyons added that he hopes to sell the homes, but he’s waiting and creating a revenue model that will work until the market picks up.

Affluent Americans are living more modestly and are looking for more value for their dollar. Six figure income-earners even led the “coupon enthusiast” frenzy during the recession. “In fact, more affluent households dominate coupon usage: 38% of “super heavy” users and 41% of “enthusiasts” come from households with incomes greater than $70,000,” according to The Nielsen Company’s Nielsen Wire blog entitled, “The Coupon Comeback.” “Households with income of $100,000 and up were the primary drivers of coupon growth in 2009,” it said. The wealthy Americans, American Express found, have also been gulping down more fast food.

Many of these Americans experienced a rapid decline in their fortunes during the recession. Increased investments in stock and real estate prior to the economic decline were among the culprits. These acquisitions exposed them to the nasty fluctuations in the overall market. Many found the financial shock a cathartic experience. They learned that their financial reserve was not as secure as they once thought.

The economic recovery is enabling affluent Americans to grow their wealth the same way they lost it, Jonathan Parker, a professor of consumer finance at Northwestern University told The Street. Towards the end of 2010 the luxury goods market saw more activity as the wealthy incurred more frequent first-class flights and stayed at high-end hotels.

Do you think it is better to rent or own a home? Why?

Photo Credit: krishnan / (