Buying foreclosures/REO the right option???

Question

Hi Everyone,

I am living in CA and looking to invest in a few buy and hold properties in the south east area of the US (Florida, NC etc)

I am a beginner investor and would obviously like to get in at the lowest point possible. Should I be looking for REO/foreclosure properties only or are there other ways to get good deals? I will be investing out of my state of residence so I do not want to buy something that needs huge amounts of repair and work (a little painting, flooring and minor repair are fine)

I am just unsure as to whether I should be looking only at REO or if that may be a waste of time for someone in my situation.

Any information or guidance on this matter would be greatly appreciated.

Thanks so much for your time.

David

David Faulkner · Answer

David, you've been given some very good advice from

@Aaron Mazzrillo and @Rick H. ... judging by the lack of response to them, it may be falling on deaf ears ... I would caution you to not filter out the advice that you don't want to hear and focus on the stuff that you do want to hear.

I also read another one of your posts asking for something with high cash flow and long term appreciation ... let's think about this for a bit ... a property that is cheap and has high initial cash flow almost by definition will NOT have a historical track record of high appreciation ... if it did, then it would NOT be cheap. The opposite is equally true with a property that has low initial cash flow and high appreciation and rent growth. Those are the laws of supply and demand that drive market pricing for rents and price. You can make money in either type of market if you are local, knowledgable, and skilled in REI,  but asking for both is like saying that you want a property that has little to no appreciation in the past decades, but will suddenly start to appreciate rapidly the day after you purchase it ... I just don't think that is very realistic. Trying to get both, you are likely to run into only slimy salespeople who will tell you whatever you want to hear and you may end up getting neither.

Stay local ... if you don't like the market where you are, then move to a market you do like for investment. If you don't want to move, then ask yourself why not and you may begin to understand why your home market is expensive in the first place. Good luck to you whichever path you choose.

Aaron Mazzrillo · Answer

As a beginner investor, your game plan is;

Buy an out of state bank owned property at the bottom of the market that needs little work.

I've never purchased a stock in my life. I'm going to start tomorrow and my game plan is;

Buy stock in a foreign market that is ready to rapidly increase, and then sell it for a profit.

What do you think my odds of success are? What do you think my odds of failure are? Most importantly, what do you think your odds are of being swindled by some unethical agent or other scumbag are?

You live in Irvine so somewhere along the way in life, you've made at least a few right decisions. Your current plan goes against everything you've done up to this point that got you to that beautiful, and very expensive city.

Tom Reynolds · Answer

Hi David,

I'm a Florida resident, have purchased a number of bank owned foreclosed properties and researched and visited many more. Most every REO/foreclosure I've looked into is in need of more than just cosmetic work. Either due to neglect by the previous owner or vandalism these properties require patch/paint/flooring but also re-roofing, new mechanical equipment, electrical and/or plumbing work, windows and doors, there are failed septic systems and wells with damaged or stolen equipment. There are still opportunities out there but you need to hunt for them and make the changes necessary for habitability. Many of the unoccupied properties have set vacant for long periods of time and have been vandalized. You are also subject to the requirements of the insurance companies and in many cases local code enforcement has tagged the property and there may be fines imposed, as a lien that will show up in a title search. You need to look beyond the obvious and information provided in the property descriptions.

happy hunting,

Tom Reynolds

Craig Bowen · Answer

Hmm, where do i start!?  There are many deals that are not foreclosures....AND there are good deals on the MLS!  It really depends on your goals, how you search for them and who you are working with and around.  It sounds to me like you are trying to get in the game for the least amount of risk/money.  If I had a nickel......

In your area there will be two things I would suggest you pursue first.  #1 is your local REIA.  There you will meet like minded people and most likely get on their mailing list.  This will in turn introduce you to other investors and in particular wholesalers.  They will send you many possible projects, most NOT in the MLS or foreclosures.  The option is to learn how to do it yourself....see all over this website!

#2 is to bury yourself in the education available here.  Watch all of the webinars, listen to all of the podcasts and you will begin to form an idea of the direction you WANT to go and the direction you CAN go.  It will show you what you need to bring to the table in any strategy so you are prepared when the right deal DOES come along.

Anyone can jump in, I hope you do!!

David Rutledge · Answer

Got it, thanks so much for the insight. If you have anything available or if anything comes up I would be interested to take a look. You can PM the details if you feel that there is something that may be of interest.

Thanks again for your time.

David

Erica Muller · Answer

@David Rutledge I'm a local Orlando investor and I can honestly say that it's slim pickens. There are definitely opportunities out there but they are really few and far between right now. The market is at it's peak. I buy only wholesale properties not listed on MLS and I don't deal with foreclosures anymore because they're not much better of a deal than anything else on MLS. I'm happy to share my wholesale findings with you as I can't buy them all.

Rick H. · Answer

Suggestion: find at least one (1) investor who started by buying out-of-state properties and is still financial satisfied with that game plan.

Sure, it might be ok for someone who already understand real estate, title, financing, taxation and rental management then ventures to another area where they need to build a base of contractors, handymen and other vendors.

If you don't know how to fix a problem locally, it'll be compounded from a distance.

Why not start in the outlying area like Hemet, San Jacinto or hHgh Desert and Antelope Valley markets where you can drive to the property?

Stacy Williams · Answer

I agree with everyone. being local, I get to walk up to the property, see the sidewalk, see the roofing and warped floor boards from the window, etc.  There is something about going to a property vs. looking at "staged photos" of only the good aspects of the property.  There are over 1,000 people who will sell there property in Florida. Everyone cannot be trusted. Unless I worked with someone in the past, I would not take their word for it.

Your name, word (integrity), time and money should not be wasted. Protect it all. I agree with others about deals there are closer home before going across the country. But if you do get a property, I see our market in Jacksonville, FL goes very fast if you market it RIGHT.

David Rutledge · Answer

No offense taken at all, I am under no illusions that I am very much a novice at this and getting the insights and advice of experienced individuals such as yourself is definitely a very welcome thing.

Thanks for your time.

David Faulkner · Answer

I actually agree that OC RE is on the high side right now, and so are many other markets ... but so what? That doesn't mean you can't make money, and if anything, if it is the peak then that means there will be some great buying opportunities coming up ... I for one would welcome that. Also agree with Aaron that nobody can predict this. Thing of it is, if you learn to invest properly, none of that really matters, you will still make money. Markets go through cycles, it is what they do ... you are better off learning to invest throughout the cycle IMO rather than chasing markets that you think are some how in a different place in their cycle or immune to them. And apologies if my last post seemed harsh, I just wanted to try to keep you from avoiding the traps I see other noobs make in only hearing what they want to hear and thinking that the grass is somehow greener on the other side of the fence because they live in an expensive market ... it is plenty green here, it is just a different shade of green. Happy to chat further if you like.

Buying foreclosures/REO the right option???

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