Real Estate: The Sharks Are Back Working Inside Deals With Banks

Even so the George W Bush’s Great Recession had many factors at play such as the trillion spent for the wars in Iraq and Afghanistan, the trigger effect was the burst of the US housing market bubble. From 2002 to 2007 the banks played an active role in inflating the prices and in some area of the country such as California, Florida and Nevada the real estate “value” saw a yearly increase of about 20 percent. Properties were appraised high, loans were granted on stated income and banks were pushing borrowers to use their houses as piggy banks and pulling money  out from it by selling  them countless lines of credit. This real estate “gold rush”, artificially created by the Bush administration and the banks, ended up in the 2008 massive crash and a rude awakening for financial institutions across  the world.

There is an empirical rule of thumb in how and when an economic recovery start after a major financial crisis: The trigger factor, in our case the collapse of the real estate market, is the one to recover first. Unfortunately, the current signs of the housing market are not showing such overall trends. Many Americans are still facing foreclosure, the market remains bloated with a record inventory and the banks are still putting their feet on the brake by not offering  homeowners in distress  loan restructuring options so they can keep a roof above their heads.

It seems that the few big banks still in the business of lending money for real estate purchases are just eager to cash out to clean up their portfolio from “toxic loans”, and by doing so they are putting a drag on property value preventing a real recovery. Once again the big banks such as Bank Of America, Morgan Chase and Wells Fargo are only concern with very short term strategies making their respective quarterly earning reports look good for the share holders. Of course by doing so they are not serving the public interest and even their own in the medium to long term.

I am currently in the process of selling my house in California, which give me a first hand experience of the negative impact from banks and real estate investors on the housing market. It is a regular sale, and I have quite a bit of equity on the property. However, I am still competing with countless short sales and foreclosures which stubbornly push the market down. My goal is to own a property free and clear, and to be out of the borrowing business for good. This also means that I am currently looking for some properties to buy. Unfortunately, the properties which I could afford to buy cash in Los Angeles county are snagged up in no time by investors who have an inside track with banks or REO, the shady real estate agent representing the banks.

This is how the scheme works in a nutshell. The new “shark flippers” of real estate are typically looking for distressed properties in the range of $200,000 to $250,000 ( In LA county the medium price for a single family house is $313,000). They pay cash for it, then do some work on the property, and within three to six months put the property back on the market for $400,000. In Nevada and Florida, two other states which like California can be call Ground Zero of the real estate collapse, the investors in conjunction with the banks are applying the same type of business model. For example, in Las Vegas, buyers can pick up decent properties as cheap as $120,000 or $150,000. At the pick of the market, the very same properties sold for about three to four times this amount.

At least in Los Angeles, a large proportion of the shark flippers are foreigners. They are Russians, Chinese, Armenians, Israelis, Hungarians with very little morale scruple and a lot of cash in their pockets. Some are partners in REO and represent pool of investors. Needless to say, this trend is preventing regular American families  to buy  affordable houses to call it home. The sharks have the angles with the banks, they have the cash and are attracted by the blood of homeowners in distress.