Posted by Annalisa Burgos | September 8, 2009
FrontDoor insider Rick Sharga, SVP of foreclosure data provider RealtyTrac, offers valuable advice in this guest blog post:
“Foreclosure properties have always been an area of keen interest to real estate investors. Over the years, homes in foreclosure and those already repossessed by the banks have been hidden gems, most often the purview of seasoned investors with “insider” contacts who have given them early notice of upcoming deals.
And the deals have been significant; it’s not unusual to hear of foreclosure and bank-owned homes selling for discounts of 50 percent or more compared to prior sales.
With the advent of the Internet, companies like RealtyTrac have made finding foreclosure properties much easier. Today, virtually anyone with an Internet connection and a valid credit card can start searching for, analyzing and ultimately buying properties in all stages of foreclosure.
The value proposition is compelling: home prices have fallen between 20 and 30 percent in most markets; foreclosure homes tend to sell at even lower prices; and mortgage rates continue to bump along near historic lows. Finding a home that represents a great deal isn’t nearly as difficult as it once was.
Turning that deal into an investment with a high rate of return, however, is as challenging as ever.
In the early part of the decade, foreclosure investors tended to be “flippers.” Neither dolphins nor pizza makers, these flippers would buy homes at a discount and resell them at a profit within a very short period of time.
Foreclosures were prime properties for this pastime. Often, flippers would work directly with the distressed homeowner and lender, leveraging the equity in the home to negotiate a purchase price that covered the bank debt while still allowing the investor to buy the property at a discount. Other times, the investor would work with the bank to purchase, rehab and resell bank-owned properties. This activity gained such momentum that it spawned several TV series, and, fueled by continually appreciating home prices, drew more and more inexperienced investors into the mix, often with disastrous results.
Today’s investor is much more likely to be a landlord than a flipper. While we probably won’t see this turn into a craze punctuated by a new hit show (“Rent this house!”), we are likely to see a more stable, more realistic and ultimately more successful approach to real estate investing.
Apartment occupancy rates often drop during foreclosure cycles, as homes become available to rent at equivalent (or better) prices. There’s a market for rental homes as well, since over 1.5 million property owners have lost their homes to foreclosure since the beginning of 2006. Rental units provide ongoing cash flow to investors. And while there’s usually a long-term appreciation in the value of the properties, which many owners will profit from in subsequent sales, the cash flow helps the investors ride out any short-term price depreciation.
Buying a foreclosure property at a deep discount, doing some repairs, finding a good tenant and holding the property as a long-term investment is a lot of work, isn’t as sexy as flipping a property, and certainly isn’t a “get rich quick” formula. But for investors who are smart enough and willing to work hard enough, buying to rent can be a much safer, less volatile approach to successful real estate profits.”
Check out FrontDoor.com for more real estate tips and advice:
Posted by Annalisa Burgos | June 11, 2009
RealtyTrac’s May foreclosure report is out, and as usual, the news is grim. Foreclosure activity is up 18 percent from a year ago. Even worse, most real estate experts are warning us about “shadow foreclosure inventory” which is set to hit the market later this summer. Oh yeah and the unemployment rate is at 9.4 percent. So if you think we’ve hit the so-called “bottom,” think again.
The good news is that President Obama’s stimulus plan seems to be working. Lenders are now more willing to work with struggling homebuyers to refinance or modify their loans or negotiate short sales, in which a house is sold for less than what the borrower owes and a portion of the loan balance is forgiven by the lender. Why would they do this? Because the federal government is giving them money to do this, and besides, better to sell and write off the loss now than deal with the foreclosure process and try to sell a property in crappy condition. I spoke to a short sale expert for Coldwell Banker in San Diego, Troy Huerta, who has some great insight and advice on the subject. Stay tuned for my blog post on that.
Meanwhile, FrontDoor Insider and Freak Out Prevention Specialist Tara-Nicholle Nelson is spreading the word about her Drama-Free Real Estate Guide, which provides concrete solutions to some of the most common issues consumers are facing today. Just in time! Situations like losing your job and trying to make your mortgage payment. Or you got preapproved and suddenly your lender says “no money for you.” Yours truly will post a vlog later taking you behind the scenes of our media tour.
Posted by Annalisa Burgos | June 2, 2009
Every now and then, we’ll invite one of our Insiders, FrontDoor’s team of savvy real estate experts, to write a guest blog. Today, Rick Sharga, SVP of foreclosure data provider RealtyTrac, shares his tips for buying a foreclosure property and how to minimize the risk:
“Interest in buying foreclosure properties has never been higher. In a Harris Research study conducted for RealtyTrac and Trulia, over 55 percent of homebuyers expressed an interest in buying a foreclosed home or bank-owned property. A number of foreclosure-related Web sites, including www.realtytrac.com, are among the most frequently visited real estate Web sites.
And it’s no wonder: according to RealtyTrac research, a homebuyer will see an average discount of over 30 percent on a foreclosure property or bank-owned home across the country. In some of the harder hit areas, discounts are considerably higher, with homes selling for 70 percent or 80 percent less than what they sold for just a few years ago. Those lower prices, combined with historically low mortgage rates and an $8,000 tax credit for first time homebuyers make this an ideal time to be on the market.
Even with all of the interest in purchasing foreclosure homes, and the financial incentives to do so, many people have concerns about possible hazards. According to the Harris study, 71 percent of those surveyed were concerned about “hidden costs” and 46 percent were afraid that the process was “risky.”
In fact, the most common mistakes people make when buying a foreclosure property are overvaluing the property itself and underestimating the amount of money it will take to repair and refurbish the home. But there are simple steps that homebuyers can take to minimize risks and ensure a more successful purchase.
Avoiding “hidden costs”: Buying a bank-owned property is the safest bet. The bank will typically have cleared the title, meaning there are no outstanding liens against the property. If the bank is servicing a loan for Freddie Mac or Fannie Mae, they will generally have to bring the property up to a minimum level of repair as well. Smart homebuyers will engage the services of a professional contractor before purchasing the home, to get a formal estimate of how much work needs to be done, and what it will cost. Many contractors will prepare an estimate for free in the hopes of securing the job. Both Fannie Mae and the FHA also have loan products that allow a homebuyer to build the cost of some repairs into the actual mortgage, further minimizing out-of-pocket costs.
Taking the “risk” out of the process: Anyone concerned about the process being risky should avoid foreclosure auctions. Purchases are made without the opportunity to inspect the property and on an as-is basis. Auction purchases are almost always cash only, and there is no recourse if the property turns out to be a lemon. Buying a bank-owned property or a foreclosure home via a short sale conducted by a professional real estate agent minimizes risks considerably.
As with any other investment, there are trade-offs between risk and reward. But given the state of today’s market, and the enormous discounts available on foreclosure and bank-owned properties, the rewards are great and the potential risks can be managed. It’s a buyer’s market that may only come along once in a generation — time to get busy!”
Thanks for the tips, Rick. For more great advice, check out FrontDoor’s step-by-step guide to buying a foreclosure home, whether it’s in pre-foreclosure, at auction or bank-owned at http://www.frontdoor.com/foreclosures.
Posted by Annalisa Burgos | May 14, 2009
Unless you’re a seasoned real estate investor, most buyers are uncomfortable with approaching a homeowner who’s going through foreclosure and offering to buy their home. Rightfully so, since it’s a very difficult time, emotionally and financially, for the homeowner.
But it’s during this first stage of foreclosure where you can find the best bargains, often through a short sale. Try these helpful tips when dealing directly with the homeowner. Negotiations require patience and tact to avoid hang-ups and slammed doors.
In RealtyTrac’s April foreclosure market report, activity is up 32 percent from last year to another record-high level, mainly due to the first two stages of foreclosure: mortgage defaults and auctions. The third stage — bank repossessions or REOs — fell to their lowest level since March 2008, but RealtyTrac’s CEO James J. Saccacio expects a spike in REOs as more loans “move through the foreclosure process over the next few months.” Not surprisingly, Nevada, Florida and California were the states with the highest rates of foreclosure.
As more homes go through the foreclosure process, more homebuyers are flooding the market in search of bargains. We already saw that in the first quarter, as increased foreclosure sales led to a 14 percent plunge in the median home price from a year earlier, the biggest drop on record, the National Association of Realtors said on Tuesday.
Did you know each state has its own laws governing foreclosures? Do your research before buying. Read about each state’s laws and stay up-to-date with the latest foreclosure news.
Posted by Annalisa Burgos | April 24, 2009
As far as real estate news is concerned, this week was more of the same. Foreclosure activity is up, home sales are down. And with unemployment up 8.5 percent in March, more out-of-work homeowners will have trouble making their mortgage payments.
Hopefully by now, every struggling homeowner knows there are options to foreclosure, such as a short sale, refinancing or getting a loan modification.
As Rick Sharga, SVP at foreclosure data provider RealtyTrac, explains in this interview earlier this year, three major reasons are fueling the jump in foreclosures across the country.
Meanwhile, one man’s loss is another man’s gain. Not surprisingly, investors and first-time homebuyers are flooding the market looking for bargains. Among the best cities to look? Las Vegas. Sin City had the highest rate of foreclosures of any major city in the first quarter of this year, according to RealtyTrac’s latest report.
And while existing home sales are down 7.1 percent over the past year, the National Association of Realtors says more than half of the homes that were bought in March were snatched up by first-time buyers. Hmmm, must be that $8,000 federal tax credit everyone’s talking about. Wish I could get in on that, but I bought a condo in 2007.
For tips and advice on how to work the foreclosure market, check out FrontDoor.com’s Foreclosure Buying Guide.
Posted by Annalisa Burgos | March 12, 2009
With foreclosures instantly at the top of the news again, we’ve pulled together tips and tools for homeowners struggling with their mortgages. For one, contact your lender immediately and ask about your options, whether it’s a refinance or loan modification.
Also, investors looking for opportunities should check out our 10 steps to buying a foreclosure. Did you know properties can be in one of three stages of foreclosure? Find out which one is right for you. Plus, search for available foreclosures on FrontDoor.com.
According to RealtyTrac, the foreclosure picture remains bleak, with February foreclosure filings in the U.S. up 30 percent year-over-year. Among the top 10 hardest hit metro areas, in order: Las Vegas, Cape Coral-Fort Myers, Stockton, Modesto, Merced, Riverside-San Bernardino, Bakersfield, Reno-Sparks, Phoenix and Vallejo-Fairfield. The news comes amid President Obama’s $75 billion dollar efforts to keep struggling homeowners from losing their homes.
FrontDoor Insider Rick Sharga of RealtyTrac predicts even more challenging times this year. Several analysts and economists have said that Obama’s refinancing and loan modification programs aren’t enough to buoy an economy plagued with an 8.1 percent unemployment rate and lagging consumer confidence.
And with foreclosures sure to make headlines again, FrontDoor is working on a new foreclosure resource center, with more helpful guides and tools. Stay tuned!
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