Investing in Foreclosures?

Question

Anyone here use this method? I think the traditional find and flip method is slightly more difficult in today's market then it was 2-4 years ago. House prices are stagnant/depreciating in most markets so finding that rock bottom price becomes all that much more important. You can't just simply buy a house slap paint on it, new landscaping, floor and expect to sell it for 5 digit profits.

We all know that the subprime fallout has caused lenders to force many into foreclosure, these numbers are only expected to grow through the next 1-3 years.

So would it be wise to think if you were looking to get into the flip market that these foreclosures would have the potential to be a profitable investment?

How typical is it to find a foreclosure at 15-30% under market value? I understand there are different phases of foreclosures. Would the bank owned auction be your best bet to find a deal that is under market value?

Any input would be greatly appreciated.

As you may have seen in my introduction post I am 24, 1.5 years out of college. I have around 10-15k to work with and I think I am going to pair up with a friend of mine. So we have the ability to go 50/50 on expenses and it will also make getting a loan easier.

I am interested in getting into REI, mainly flips at the moment and eventually multi unit rental properties for the income stream.

So to make a long story short, given my circumstances(money, expereince, market) what would you do?

Are foreclosures the way to go for now?

Thanks!

N/A N/A · Answer

Savoy,

About 'using the MLS and other public places to find "leads"' - 
1) How can I access MLS? Don't the real estate guys only have access to it. ? 
2) A public place - would be the local country clerk office. Right ?

Thanks,

Brandon Schlichter · Answer

Savoy's right....

Definately look for absentee owners that are in pre-foreclosure,  expecially on multi family units. Once in a while i get reports of preforeclosures on 3-4 unit properties....Some of them can be had for VERY cheap.

N/A N/A · Answer

I personally would recommend using the MLS and other public places to find "leads" to off market properties. I always ask Realtors if they have any "pocket listings" or properties that they own and want to sell. I also run  into owners and ask them if they know anyone looking to sell. Many times they end up having a property in their portfolio that is underperforming for some perceived reason and want to get rid of it. Talk to property managers, apartment managers and do not forget absentee owners. Call a title company and get a list of absentee owners in your area and when you have free time, call them up. (Most of the title companies I know of scrub telephone numbers against the Do Not Call List which is cool.) You can always send them a note as well. Do like 10 a day on a consistent basis and it will turn up some nice deals.

I recommend you look into 4 unit properties to start off. You get the same financing as single families with exception for loan limits. And the bank counts 75% of the income from the property as your qualifying income. Nice! (At least here they do)

That's how I did my first one. I lived in one and rented the others. I did an FHA 3% down financing on it. The 3 units covered the mortgage and when I moved out, the front unit put $1,100 a month into my pocket.

In fact, look for 4 units, owned by absentee owners that are in pre-foreclosure....How about that for a bonus?

How I shop for rental properties (4 units)? Look for management issues like low rent or tenant problems. Master the art of raising rents (in non-rent control areas) and deliberately causing a mass exodus of the riff-raff.

Learn to love and be able to solve other peoples problems...would be my tip for success. Good luck

Brandon Schlichter · Answer

Alot of banks will allow a 3x repair value for the home to be factored in the market analysis of a home in a pre-list stage.

I deal with foreclosures on both sides, the agent preparing to sell, and the investor wanting to buy. There ARE good deals out there, you just gotta look for them. Some lenders are willing to take a hit on the property and sell it for a reasonable ammount , while some don't care and want X dollars for the property and will let it sit for years to make a extra thousand bucks.

Example - I just bought a listed foreclosure , it was a out-of-town brokerage and hardly any agents knew it was listed. I took a look at it , ARV was around $89,900. The list price was $46,900 , the bank assumed it needed a new roof , paint , carpet  , plumbing and a few other things. I bought it for $46,000 w/ $1150 in buydowns. My total repairs for the WHOLE property have been around $2,000 , the roof was fine other than the tarp they put over it ,and fixed it with a $15 bucket of roofing stuff.

They're out there, just gotta look!

Brandon Schlichter · Answer

This one was on the market for 3 months or so, very few looked at it becuase it was listed by a out of town brokerage , and hardly any agents had access to information about it.

If it's listed by a local agent , you have about 3-7 days to grab it, and you'll most likely go into a multiple offer situation.

I've seen about 10 GREAT deals thus far in 2007, with some being amazing and going for about 33% of ARV (Some didn't even need repair!). You'll find out what i do........most investors aren't serious, like to play around, and in general can't find good deals.

I sold 2 foreclosures in April (and 1 in the first of May). #1 was a PP $61,001 and estimated ARV of $99,000 with about $10k in repairs . #2 was $46,000 PP w/ ARV of $89,900 I've spent at most $2k in repairs so far , and #3 was $135,000 PP with a ARV of $199,000 with $25-$30k in repairs.

They come up ALOT , but you gotta have someone that looks at the MLS multiple times a day. I HATE realty trac ,and have a system designed very similar that picks up the foreclosures in the area. I've had RealtyTrac people call me about my FC listings to say 'Will they take the $84,900 that's listed on the website' , when in reality the home is worth $123,900 with a list price of $123,900.

In some markets, like our closest metro area, i could sit on the MLS all day and find great deals. It's just one of those things that takes time, and finding a agent that deals with investments alot.

(edit, forgot to include repair prices with values)

Dave Kennedy · Answer

Interesting.

How long would you say these good deals would last on the market? Would investors usually pick up on something 2 or 3 days of it being listed?

What sources would you recommend for foreclosures? I know RealtyTrac is a big one but my assumption is that it is so well known the deals are almost impossible to come by.

Is there are certain benchmark you look for in terms of under market value?

EX... You'd like to get it at under 20% of ARV.

What type of discount would the average investor be looking to play with? Obviously the bigger the better.