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Author: LuckyUte Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 52  
Subject: Re: TLCs as the RE market drops Date: 1/20/2007 4:42 PM
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C:

You obviously have done some recent studying as you have zeroed in, I think, on two questions which you should be asking:

1. Is the risk worth the reward based on where I would likely invest?
2. Where are we on the supply/demand curve?

As to #1 you have articulated some of the challenges you would face investing based on your current location and where the opportunities might lie. Not being local is certainly tougher as knowing the value of the underlying real estate becomes much tougher (unless you have a broker who you trust to do valuation work for you). Though I also live and work in Virginia (DC area) all the work I do is out of state and therefore rely on brokers and attorneys who came recommended to me and with whom I have come to trust over time. Still makes it tough to really understand the local markets. There is only so much you can get from a broker when he/she or you are not allowed to set foot on the property. These so called drive-by BPO (broker price opinions) can be limited in their utitilty. That said, it is better than knowing nothing. If you are within driving distance of the areas you want to invest, you can and probably could get away with things that a broker can't; such as trespass.

In the end it comes down to your comfort level of the value of the real property and at what price you can buy the lien (the "LTV"). As with stocks, price matters and if you can have a Buffet like margin of safety in your LTV, all the better.

As to #2, back in the mid-90's every big insurance company and bank seemed to be getting into the lien investing business. Buying up the entire delinquent tax roll of a county or city and then securitizing. By 2001 most of these big companies were doing everything they could to get out of the business. I personally am aware of three institutions that started liquidating to the best of their ability about that time (and some still are trying to get rid of the "assets") simply to take the write-off and move on. Now, the institutions that are involved are much smarter about how they go about the bulk purchases, learning the lessons from the past. They are now more careful about how they spend money after the purchase and are more quick to write-off a bad asset rather than chasing it with more money after bad. Also, these few institutions have now been involved for many years, survived the glut of money and have staff that work the portfolios full time.

Right now, off the top of my head I can think of five larger institutions which are still active in buying. This doesn't mean that the demand has slowed. More individuals are involved than ever before, and considering many have taken one "seminar" and now are experts, they price things beyond what is reasonable many times. As in all investing, if you are going to buy at auctions, only pull the trigger on certificates you believe have a reasonable LTV and pass on the rest.

One option you may wish to consider is buying the certicates/liens in the secondhand/aftermarket. This would be like buying from people who bought at auction and are looking to get out. If you want to get started and think Maryland might work for you based on your location, I can make some phone calls and probably provide you some names and numbers of asset managers who might still be looking to liquidate in Baltimore City and County, Prince Georges and Montgomery Counties.

This post has rambled a bit and been somewhat a stream of conscienceness. But I hope it has provided you some more information. If you want clarification of any of the ramblings, just ask, and I can stay focused just on that question.

Roger
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