A growing number of speculators have found gold amidst the real estate fallout of low-end properties in Phoenix, Arizona. Snatching up owner-occupied properties in foreclosure, speculators assume the role of landlord: renting properties back to the very owners who just lost title. The speculator makes money on the income property and the prior owners pay rent substantially lower than their previous mortgage payment. Some speculators claim they will sell the properties back to the prior owners in future years, returning full ownership to the foreclosed homeowners.

Absentee buyers, encompassing both speculators and purchasers of property for vacation purposes, accounted for approximately 40% of home sales in the greater Phoenix area in April 2009, up 50% since late 2007.

first tuesday take: Is it possible to scavenge filet mignon from the ribs of one of America’s worst hit cities in the real estate bust? With foreclosure moratoriums over and more homeowners unemployed, this trend is likely to propagate and spread to other real estate casualty-states: Nevada, Florida, and of course, California. In fact, it appears to have already begun in California as the number of speculators and investor acquiring REO properties each month is presently increasing. However, this will hinder growth in the real estate industry and ferret away wealth from the true owners of real estate: buyers and sellers.

Speculation is always a menace to real estate, as it was during the crest of the bubble just four years ago, whether you are a builder or a property owner. The only short-term beneficiaries of speculation are the brokers, escrow, and title companies directly involved. Speculators require two sets of transactions with two sets of transactional fees to get the property from the true seller to the actual user. One could say in only partial jest that the speculator is one who creates a “sandwich transaction” which has no economic benefit except to remove wealth from the real estate industry. At the moment, foreclosing lenders are giving speculators the platform they need to operate.

However, income/rental investors are not speculators, they are long-term owners. The best opportunity to profit begins in the digs of a recession when long-term investors are prowling around and preparing themselves for the next boom-time opportunity. And it’s coming, circa 2017.

Re: “Amid Housing Bust, Phoenix Begins a New Frenzy” from the New York Times.