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I am working with a few investors, and it would seem to be just the opposite in certain RE market segments here in AZ. For instance, the REO/Distressed market under $400k is relatively booming. A lot of the "smaller" investors are scooping up the sub-$100k properties aggressively as well. Almost all of the turn-key REO properties in desirable areas will have multiple offers, with a large percentage closing above what the banks are asking.
I'd say the people who are being stifled/discouraged the most are the first-time/primary-residence home buyers looking for deals (or even people looking to invest without hard money). They are ready and willing, but are competing with (and frequently losing to) cash-buyer investors. Banks would rather sell a property "as-is" then deal with buyer-financing issues, especially if it needs work and wouldn't be eligible for a certificate of occupancy in its current state (a non-issue for the investor paying cash).
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