Buying properties in area with high foreclosure (yes/no)?

8 Replies

Good evening,

Note: This is part of my learning about new things so I'll keep some homes on the shelf, so to speak, just to see what happens with them. Ie. Listed at, sold at, how long on market.

Here goes....

Looking in an area not realizing that there are several foreclosures. I inquired about a home that the seller is selling (his mother lived there and passed away) who did quite a bit of fixing up such as new roof, kitchen, some flooring, painting, it actually looks good. Counter tops aren't granite and the appliances are all new. There doesn't look to be much that would need to be done. Landscaping is above par compared to some of the neighbors.

It's not sold since it was put on the market in May and has already dropped $5k. I've checked the comps and one home is higher and went on earlier - that seller is probably just leaving it as is without thinking on the area. Anyway, this guy dropped his price to what he countered with on one offer. 

The home's neighbors and street all have properties that are in good shape and well kept.

When I inquired about the home as a rental, it was suggested it might not be good because the area has a high rate of foreclosures. I looked up the area on foreclosures and did find quite a bit.

Does that really affect home values? Won't they eventually be purchased, fixed up, sold or rented, or just lived in by the owner? This question to myself I thought well yes, it may take some time not knowing how long the other properties have been in foreclosure and there is the possibility of others going into foreclosure as well.

It's an area that does rent, I think it's a higher student rental.

What is your take on this for those well experienced in the business of foreclosure? I suspect that a lot of investors buy them and flip them but it could be there are just as many that buy and keep them in their portfolio.

Thanks and have a great evening....

Generally if a home is in an area with a high number of foreclosures the house will most likely appraise for less based on the foreclosure rate. In some areas they have stopped using foreclosures as comps if your house is not a foreclosure but there is no guarantee of that . I would consult with a local real estate agent and ask local appraisers as well to get a feeling how the house would be valued. 

Multiple foreclosures = Opportunity. 

A production home or recently built neighborhood may have sold high during its opening for multiple reasons. You should really do your homework on the value, preferably by square footage pricing, of the properties in the area. Regardless of the number of foreclosures you will end up making a good solid investment purchase if you don't overpay. 

My one metric that I consider the most important is a properties ROI. All other items have been considered to get to that number, if the ROI is not 15 points or more leveraged or cash buy, then I move on. Good luck and don't be afraid of a neighborhood because of multiple foreclosures, it may be a great place to farm multiple houses!

In your  opinion then @Dawn Anastasi and @Curtis Yoder being foreclosure owners yourselves, taking into account the area (jobs, economy, people moving in and out) it could be a good purchase if I see other foreclosures being picked up and not sitting too long.

I realize after viewing the foreclosures that it's a property just like any other that wasn't in foreclosure - getting it at a good (right) price. Initially, I shunned foreclosures but am realizing those may be deals that I'm passing up. It's a different purchase though and I'm learning just how different.

I've done some research and found another foreclosure after positing this that is selling for $134 (dropped from a month ago at $141) that appears to only have $97K remaining on the note. Prior to looking at the history, I came up with $112,500 - dramatically lower yes I know but this is what trails out of my numbers.

Do you then look at the remaining note on the property and the commission that the realtors want to make relative to the offer price? I didn't, I just came up with what it was worth to me after calculating out what it would take to run the property and cash flow.

Thanks for your input - much appreciated!

Originally posted by @Daria B. :I've done some research and found another foreclosure after positing this that is selling for $134 (dropped from a month ago at $141) that appears to only have $97K remaining on the note. Prior to looking at the history, I came up with $112,500 - dramatically lower yes I know but this is what trails out of my numbers.

I don't understand this paragraph. For one, what do you mean by foreclosure? Is this a pre-foreclosure? Is it listed on the MLS? Is it owned by a bank (REO)? We need to know this to give you a good answer.

In any case, you stick to your numbers.  Math doesn't lie.  Also, if you are shying away from REOs then you potentially are missing out some of the better deals available.

@Dana Whicker it is listed as a "foreclosure". Maybe I"m not using the correct terms. I understand pre-foreclosure but this is not that property.

The bank owns it after foreclosing on it - so isn't that classified still as a foreclosure? Please enlighten. There is an agent as I know banks don't deal directly with the public, I suppose. The listing has foreclosure information as in: listed by the bank. This property was foreclosed and now the lender is selling for $$$.

Exactly, I was not looking at any foreclosures because I had no understanding of how to deal with them. I'm learning now but I'm still far away from dealing to the lengths that others do. I will go look at some and if I feel the what warrants the cash flow I'm looking for in addition to the 'other' things like expenses then I'll go further.

@Daria B. OK, the property was foreclosed on but now it's technically an REO (Real Estate Owned) by the bank. In that case, there's no remaining balance on the loan. Well, assuming this is the 1st lienholder which since it's listed with a realtor it better be and you're going to get title insurance and marketable title anyway so don't worry about that right now.

I can see why you might shy away from foreclosures.  They often have not been occupied in a while.  They're winterized (hopefully).  It can be an adventure getting the power and water turned on.  Click (do you hear anyting?).  Oh no, that's running water somewhere!

 However, I think you should check them out.  Look at them and evaluate them just like any other property.  The banks can be frustrating to deal with for some people but I actually prefer to buy from them than "real people". 

The banks negotiate based on a formula.  It's a cold hard decision making process.  The property wasn't their first rental.  They're kids didn't grow up in the house.  There are no memories for them.  If your offer meets the formula, you get the house.  Always offer lower than you think they would take.  You will occasionally be pleasantly surprised.

@Dana Whicker Really, no remaining balance?!? So they are making a killing on the sale if there isn't a note that needs to be covered.

My research generally goes like this:

1-look up the appraiser and tax site to find liens and general history - am I dealing with one or two owners (if foreclosure then it's just the bank)

2-look up the county public records to essentially do a "ownership-activity" search where by this can be how the current owners acquired the property and any permits that "should" be on the property as a result of "new roof installed 2015". ;)

3-get rental area rates and crunch some numbers with tax, ins, rent, capX (will fluctuate if newer things have been done), r&m (lawn-do I want tenants to pay?, etc)

4-then i do my own drive by if I see potential.

So with that said, the foreclosures that I've been looking at to "learn" have mostly been fixed up already to a livable existence. Homepath is what I see a lot on the signs out front of the home or in the listing.

Thanks for the information I feel better equipped and armed with better knowledge of this area.