New Investor looking to break into the foreclosure market

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New Investor looking to break into the foreclosure market

Sebastian Tamburro
Member since 2024 · 1 post · 0 votes

Hello BiggerPockets Community,

My name is Sebastian Tamburro, and I’m a Canadian currently studying at Colgate University. Alongside my studies, I’ve had the privilege of competing as a Division 1 hockey player, which has taught me the value of discipline and strategy—qualities I’m excited to bring into my real estate journey.

I’m looking to purchase my first investment property in the U.S. with a budget of $250,000 to $350,000 in cash. My goal is to find a cash-flow-positive rental property that I can manage while finishing my degree, setting the foundation for a real estate portfolio I plan to grow steadily over time. Specifically, I’m drawn to distressed properties, such as pre-foreclosures and foreclosures, because of their potential for strong returns and lower acquisition costs which I feel is a great combination for a new investor with my budget.

That said, entering the U.S. market as a Canadian comes with its own set of challenges, and I want to make sure I’m approaching this the right way. I’ve done some research and have identified a few markets with potential, but I’m still trying to figure out the do’s and don’ts of buying distressed properties and how to maximize my chances of success.

For example, what market factors should I be looking at beyond the average sale price? I’m trying to assess which neighborhoods might have the best rental demand and growth potential, but I’m not sure I’m covering all the bases when It comes to pre-foreclosures and foreclosures.

I’ve also been wondering how essential it is to work with a real estate agent or wholesaler when identifying opportunistic distressed properties. Should I be prioritizing finding a local expert, or are there tools and strategies I can use to handle this process myself? What is the best way/approach to go about this step in the process? 

One tool I already have is PropStream, which I know can be incredibly powerful. I would love tips on how to use this service effectively to identify the best properties that meet my criteria. If anyone has experience with this, I’d really appreciate your insights!

In addition, I am hoping to understand the most severe risks that come with investing in distressed properties, and how best to mitigate these risks. 

As a Canadian investing in the U.S., are there specific financial or tax considerations I need to be aware of when investing in US properties (or distressed properties in particular)? 

When it comes to property management, I’m hoping to take a passive approach and outsource most of the work, given that I am a university student. What are the best practices for quickly securing reliable tenants and ensuring positive cash flow, especially for someone new to this?

Ultimately, my goal is to scale my portfolio and purchase a second property within 1-2 years after graduating. For those of you who have been in my position, what strategies helped you scale quickly while minimizing risks?

I’m also eager to dive deeper into learning about this space. If there are any books, podcasts, or other resources that you’ve found invaluable, I’d love to hear your recommendations.

And finally, if you could go back to when you were buying your first property, what’s the one piece of advice you wish someone had given you?

I’m drawn to markets across the U.S. as long as they align with my goals of strong rental demand, relatively low hands-on management, and potential for long-term growth. If you have any market suggestions or general advice, I’m all ears!

Thank you for taking the time to read my post. I’m excited to learn from all of you and take my first steps into the world of real estate investing.

Best regards,

Sebastian Tamburro

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  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    1y

    @Sebastian Tamburro you're going to get advice/offers from numerous people trying to profit off you - be careful!

    In most states, foreclosures can be very risky:

    1) They are often occupied and you can't approach the occupants to see the interior. Of course, many investors bend/break this rule, but that's another risk.

    2) If your bid wins the foreclosure auction, you then have to deal with getting rid of any occupants - who may steal/damage everything they can in retaliation:(

    3) You MUST have a great crew on the ground that can minimize surprises - not easy to do on your first deal.

    Regardless if you buy a foreclosure or other property, read our copy & paste advice below:

    -----------------------------------------------------------------------------------------------

    Recommend you first figure out the property Class you want to invest in, THEN figure out the corresponding location to invest in.

    Property Class will typically dictate the Class of tenant you get, which greatly IMPACTS rental income stability and property maintenance/damage by tenants.

    If you apply Class A assumptions to a Class B or C purchase, your expectations won’t be met and it may be a financial disaster.

    If you buy/renovate a property in Class D area to Class A standards, what quality of tenant will you get?

    Similarly, if you put several Class D tenants in a Class A 4-plex, what do you think will happen to the property?

    So, when investing in areas they don’t really know, investors should research the different property Class submarkets.

    Here’s our OPINION for the Metro Detroit market (use as a template for your target area!) that we’ve learned in our 24 years, managing almost 700 doors across the Metro Detroit area, including almost 100 S8 leases.:

    Class A Properties:
    Cashflow vs Appreciation: Typically, 3-5 years for positive cashflow, but you get highest relative rent & value appreciation.
    Vacancy Est: Historically 10%, 5% the more recent norm.
    Tenant Pool: Majority will have FICO scores of 680+ (roughly 5% probability of default), zero evictions in last 7 years.

    Class B Properties:
    Cashflow vs Appreciation: Typically, decent amount of relative rent & value appreciation.
    Vacancy Est: Historically 10%, 5% should be applied only if proper research done to support.
    Tenant Pool: Majority will have FICO scores of 620-680 (around 10% probability of default), some blemishes, but should have no evictions in last 5 years

    Class C Properties:
    Cashflow vs Appreciation: Typically, high cashflow and at the lower end of relative rent & value appreciation. Can try to reposition to Class B, but neighborhood may impede these efforts.
    Vacancy Est: Historically 10%, but 15-20% should be used to also cover tenant nonpayment, eviction costs & damages.
    Tenant Pool: majority will have FICO scores of 560-620 (approaching 22% probability of default), many blemishes, but should have no evictions in last 2 years. Verifying last 2 years of rental history very important! Also, focus on 2 years of job/income stability.

    Class D Properties:
    Cashflow vs Appreciation: Typically, all cashflow with little, maybe even negative, relative rent & value appreciation
    Vacancy Est: 20%+ should be used to cover nonpayment, evictions & damages.
    Tenant Pool: majority will have FICO scores under 560 (almost 30% probability of default), little to no good tradelines, lots of collections & chargeoffs, recent evictions. Verifying last 2 years of rental history and income extremely important to find the “best of the worst”.

    Make sure you understand the Class of properties you are looking at and the corresponding results to expect.

    The City of Detroit has 183 Neighborhoods we’ve analyzed.

    PM us if you’d like to discuss this logical approach in greater detail!

    [email protected]248-209-6824
    Logical Property Management4.9460 Reviews
    WebsiteView Page
    3Reply
  • Savannah Holzer
    Lender · Austin, TX · Member since 2023 · 233 posts · 96 votes
    1y

    Hey Sebastian - welcome to BP! For distressed properties, focus on markets with growing job sectors, good schools, and lower crime rates, as these factors drive rental demand and long-term growth. Regarding property management, utilizing local property managers can save you time, and using PropStream effectively for filtering properties by distress level and location will certainly help with finding stronger deals.

    2Reply
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