That is the $64,000 $64,000,000 question (inflation). I can’t speak for the rest of the United States but I assume that foreclosure situations are similar to the disposal of foreclosed homes in Southeast Florida. You know what they say about buying a proprty: “You make your money when you buy it, NOT when you sell it!”
Unless buyers are astute seasoned investors, buying foreclosure or short-sale properties can be very lucrative if buyers know what they are doing and don’t put their own personal emotions in the way of the transaction. It is very important to compare short-sale and foreclosure properties against all other comparative sales of regular “arm’s lenght” transactions in a selected area. Because someone paid an exhorbitant price for a property that was purchased 5, 6 or 7 years ago, that doesn’t necessary mean that buying that property today for half the price is a great deal. Most likely, that property today is actually priced par with the present regular market value and sometimes priced way too high because sellers always think that their house is the castle on his street.
Moreover, here in Fort Lauderdale, for investors, the best deals are short-sales and foreclosures under $75K. Those dwellings are usually in deplorable conditions and in the less desirable areas (busy streets, close to railroad tracks, or bordering commercial or industrial neighborhoods – remember the idiom: “Location, location, location”) but they are great values for investors who want to spruce them up with a limited budget and keep them as income properties until the market turns back up again, then, dispose of them for substantial profits. Above that price and up to $300K, or so (depending on the areas), most of those distressed properties will most likely need tons of upgrades (naturally, those close to $300K will be nicer, cleaner, larger and some with a pool than those around $200K or less) but they will be in “move-in condition” if one doesn’t mind older appointments. Buyers who are looking for “a deal” or “a steal”, even at those prices, they shouldn’t set their hopes too high to find something totally renovated, palatial-like. By chance, it is possible to find a beautifully renovated property in those price parameters but the downfall is that those homes are probably located in the less desirable locations. However, occasionnally, there are rare finds like a precious jewel in a garage sale in a better ceighborhood but, when that happens, buyers who know their stuff will snag those puppies in a heart beat; hence, those homes or condos will sell within a couple of days from when they were listed. The lucky buyers will be they who were there at the right moment to grab those infrequent opportunities. And one can not hesitate to think about it because taking time to make up his mind may lose him that incidental break.
Another interesting way to make money is to buy toxic assets portfolios or packages brokered through investment brokers. Toxic assets are, in nature, packaged for investors (large corporations, debt collectors, “vulture associates”, etc.) who have tons of disposable cash to buy banks’ or lenders’ unwanted burdened assets. Those bundles or blocks may contain a few properties or thousands properties that are sold for a set price which may represent something like $0.10, $0.15, or $0.20 cents on the dollar per door in the package, regardless the size of the properties, their condition or their lot size.
Right now, foreclosure and short-sale properties are priced pretty much very close to regular market values wherever those properties are located. Considering the aggravations associated with the purchase process of distressed properties, buyers who need a permanent home to live in are better off buying a regular “arm’s length” sale property, less the headaches. Furthermore, lenders or banks and their listing agents have developed this little scheme to sell their wounded assets by way of silent auctions (this is what I call that technique). Upon presenting an offer on a property, they come back to buyers saying “We’ve had multiple offer on this property. We are giving you another opportunity to give us your best and final offer before this date.” Unlike being at a public auction where something is sold before an auctioneer who calls for a starting price, everyone in the room can hear what the other bidders are calling until it is finally awarded to the highest bidder. Thus, giving every bidder a chance to stop anytime they want. In a silent auction procedure, there is no way to verify whether they are lieing or not and they don’t have to prove to anyone that they have received multiple offers on a property. One great problem in real estate silent auctions is if buyers bid up on their previous offer, often times buyers bid against themselves because their original offer may have been the best offer the lenders have received in the first place. Furthermore, low priced distressed properties are usually bought by cash investors; so, trying to buy those lame properties with a mortgage is like winning the lotto – cash always trumps over mortgages.
NON-INVESTORS BE WISE TO THE FOLLOWING: If you see a foreclosure or short-sale property in a neighborhood priced, say, around $250K, and a couple of non-distressed homes at around $265K to $285K and a few more above $300K, THOSE PRICED ABOVE $300k ARE OVERPRICED TO BEGIN WITH! THEREFORE, BUYING THE DISTRESSED $250k HOME IS NOT SUCH A GREAT DEAL, AFTER ALL.
John Bourassa, Realtor® with RE/MAX Partners selling luxury homes and condos in Fort Lauderdale, FL.
Call my “Sell” phone (954) 529-5505.
