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It might sound like something that’s a real estate urban legend, but “shadow inventory” is very much a real thing. The term refers to properties that are already foreclosed on and bank – or real estate – owned(REO) and are ready to hit the market for sale but are not yet made public. It can also refer to homes that owners are gearing up to sell but haven’t pulled the trigger on yet.
Think of it as real estate limbo.
It’s been predicted that the COVID-19 pandemic has only added to an already large inventory of properties that don’t publicly exist on the market. Many who were thinking of selling their properties prior to the pandemic hitting, and the subsequent shutdown, decided it would be best to wait out COVID-19 and resume the selling process post-pandemic. However, the bulk of shadow inventory properties still come from homes in the process of foreclosing(or having already done so).
Either way, the prospect for a large shadow inventory could mean real estate investors have new ways to scoop up properties in 2021. While they are trickier to find than the typical foreclosure listings, they can still be spotted while scouring public records – a tedious process that could effectively pay off.
And while the scouring public records tactic could yield some results, most investors looking specifically for shadow inventory find more success by connecting with small, local portfolio lenders. These initial connections can eventually turn into long-term partnerships for investors looking to continue building their own real estate business, particularly for fix-and-flip operations. Similarly, large banks typically have their own real estate agents and property asset managers for investors to connect with and learn about shadow inventory opportunities.
While the concept of searching for shadow inventory isn’t all too different from purchasing foreclosed properties already on the market, it is an opportunity for investors to broaden their search, get ahead of the game, and be the first – and only! – offer on a property that could result in a great return on investment.
Contact Temple View to finance your next "shadow" investment.