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Quality of foreclosed property in US rising as middle class suffer in global downturn

With experts predicting that three million residential properties will be in foreclosure in 2009 there is no sign of the increase in troubled properties subsiding. 'There is such a huge inventory of potentially problematic loans out there, it is staggering,' said a spokesman for Realty Trac which monitors the statistics.

Many are being bought by savvy, deep pocketed property investors who are adept at seeking out the best foreclosed homes but also an increasing number are being bought by investment companies who update the kitchen and bathroom and then sell at below market value.

As foreclosures grip more middle-class families, bidders are seeing a better class of property on the auction rolls. That means they can be more discriminating and there's greater competition as well.

'There's definitely more to choose from these days. There are nicer properties on the market now, which is a sad thing on a personal level, but it's good on a business level,' said Julie Thomas, a bidder for Residential Dynamics Group LLC in Chicago.

'Our theory is to not only make money on one hand but to help neighborhoods as well, to not have as many empty houses on a street,' she added.

However, the reality is that few properties actually sell at auction. Savvy bidders who are well-capitalized and well-educated in home renovation comb through county auction lists looking for properties with low prices, located in good neighborhoods and without tax liens.

With the traditional real estate market dried up, more industry veterans view distressed property sales as a new income stream, embracing the buy low, sell high strategy more common with retailers.

Jeff Pawlowski, a developer in Naperville, Illinois, has started attending auctions and is thinking of bidding on distressed properties rather than building homes. 'I think its good opportunity. Right now one of the only ways to make money in real estate is the old thing of buy low, sell high,' he explained.