Thinking bout buying a Foreclosure?
With 2000 bank-owned homes on the market, and another several thousand in some state of foreclosure, according to RealtyTrac - you might be tempted to add a distressed property to your portfolio.
Beware!
Buying a home in foreclosure is not for the novice. However, those with an appetite for risk, will find the tumultuous market stocked with plenty of investment opportunities.
These may include the sale of brand new luxury homes in Winter Park Proper for half their marked value or a bank giving away a foreclosed property in Downtown for back maintenance.
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New Home builders like Centex and Lennar:
unloaded over $1.5 billion in homes to vulture funds between December 2007 and April 2008, for between 30 and 40 cents on the dollar. Yes, 30-40 cents on the dollar!
Whether you're looking to:
flip a home
buy into a neighborhood you couldn't otherwise afford
planning to rent the home,
Cash is King.
There are properties that can be turned within a few months, but the overall market is still slow and adjusting downward.
Even if you have a renter lined up or have enough money for a 10% to 20% down payment, you should be ready to weather a depressed market for another two or three years.
Interview Real Estate Agents to determine what sort of price you can expect at resale.
Be conservative.
If you are planning on renting your property:
Calculate a capitalization rate, and subtract 10% or more of the annual yield for maintenance and depreciation.
Make sure that your endeavor is still profitable if you incur two to three years of carrying costs and depreciation.
It's also crucial to remember that bad loans that plagued speculators and unprepared borrowers don't simply disappear when distressed owners sell their properties. Unless the property goes through foreclosure auction and becomes bank-owned, outstanding liens and fees are simply transferred to the new owner. (beware of short sale)
If you plan to buy out of pre-foreclosure, make sure the property has a clean title; otherwise you'll just be trading places with the distressed homeowner.
The State of the Nation Report on Housing 2008 by Harvard University
In such situations, outstanding fees, second liens and the like aren't automatically washed away.
It isn't always the case that pre-foreclosure homes lack clear title, but once a home goes into the auction on the courthouse steps and is bought back by the bank, it is clear of all the bad loans that got the original owner into trouble.
Making sure a home has clean title is a critical first step to a sound investment.
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INVESTMENT IN FORECLOSURES
It's also important to note that you make money on a foreclosure the moment you buy the home.
You can make a good return if you're selling in a sinking market, for example, by unloading a home at 70 cents on the dollar, if you bought it for 50 cents on the dollar.
In heavily hit foreclosure areas, banks are juggling so many properties that offers on distressed homes, out-of-business homebuilders' developments and excess inventory are being entertained at under-listing prices.
However you do the math, the most important thing to keep in mind is that the investment has to be worthwhile--even if you can't sell the home at your desired price for two or three years and the current housing market deteriorates a further 10% to 20%.
If that's a model you can live with, it might be time to contact the Lee Rosa Team.
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