Banks starting to "spruce up" foreclosures?

18 Replies

So far all of my rehab deals have come from the MLS.


I have an automated email feed from my agent that sends me (REOs, Short Sales, HUD, Auctions).


Over the past couple of weeks I've noticed a bunch of REOs listed for sale have been "spruced up". Some even have new kitchen appliances. They seem to be particularly common with Fannie REOs. 


The past couple of weeks don't constitute a very large sample size, but I must admit I'm a bit concerned. I'm definitely getting priced out of the market for a lot of "standard" MLS foreclosures. 


Is anyone else noticing this problem?


I can't afford high variance at this point since I'm only doing one deal at a time (and I'm relatively new/ still trying to "prove the model"). As such, I've been reluctant to purchase at auction given the added risks. If I had a dozen deals under my belt it wouldn't be as big of an issue. Now I'm  finding myself turning to auctions as the primary source of flips for the future, and I feel like it's too early. 


One possible contingency is to broaden my rapport with local wholesalers. I've recently started contacting them and giving them my information. It seems like this might be a relatively inconsistent solution, though. 

I've also eased my criteria (SFRs in C- neighborhoods, 1 bath, less than 1200 square feet, etc). This also makes me nervous because of the lower profit potential/ smaller pool of potential buyers/ criminal activity etc. 


Anyone have any advice on how to mitigate risks from an auction/safely work in less than ideal neighborhoods/broaden sources of deals?


Thanks very much,
Patrick 


@Patrick M.

Yes its true. I've made some asset mgmt contacts over the last 6+ months and during very friendly and open conversations they've shared their plans to fix up the places even MFRs before unloading their inventory. I was taken back by that a bit myself when I heard it from more than one AM. They've even hired property managers while they're holding the properties now. Traditionally a bank wouldn't bother with renting a place out but its a dawn of a brand new day! Different markets have different laws to abide by but this is something going on in MA, IL, Cali and FL to state a few. Its a change that's a bit unwelcoming to many investors(myself included) because this is a sign that they are prepping to sell retail rather than wholesale and direct to regular homebuyers. GAME CHANGE IS HERE. 

Kudos,

Mary 

Yes, I had a Fannie Mae under contract that had new appliances, new carpet and fresh paint.  They were targeting owner-occupants. Ultimately I didn't close as they would not cure a title defect, but other than needing a fridge and a doorbell repair, the unit was move-in ready.

yes, we have noticed here as well. However it does seem to be the fannie homepath properties and only select ones. Not sure what the rhyme or reason is to only choosing certain ones... but I agree I don't like it either. Just means we need to change the game a bit!

Hmmm ... I wonder if this is occurring because inventories have declined and the recovery departments are either looking to increase their revenue recovery or move slow assets.

Fannie and Freddie have been doing this for years.

Just bought a Fannie property in Indiana. I suppose putting a new tarp on the roof constitutes an upgrade! At least they left the appliances.

Indeed I have noticed the same exact thing. Not necessarily with all bank owned properties but most of the FNMA properties that I have looked at have new carpet, paint, etc.  Mostly cosmetic stuff but it seems they are trying to open the pool of buyers and appealing to the masses and not necessarily the investors (those willing to do the work).

I'm also wondering if this indicates we're shifting from a "buyers' market" to a "sellers' market".

This isn't necessarily problematic since rehabbers are on both sides of the deal, but I would hate to rely on appreciation to make these deals work since so  many "flippers" got in trouble in 2006-2007 for doing just that.

That being said, I don't necessarily think a market recovery would be bad for rehabbers. 

Thoughts?

Does anyone have any advice for purchasing SFRs at auction?

Presumably banks will offer the outstanding balance of the loan owed.

Deals can still be found by out bidding the banks if the comps justify it, right?

It depends on the real estate agent and appraisal. If they (Fannie Mae) feel they can clean the house up and make a greater ROI then they will spruce them up. They usually will paint and new flooring. In my experience as an investor i notice they are not all that flexible on the list price if they clean them up. I had a couple of deals get rejected as they just did want to move enough off there list price.

Originally posted by @Chad Svendsen :

It depends on the real estate agent and appraisal. If they (Fannie Mae) feel they can clean the house up and make a greater ROI then they will spruce them up. They usually will paint and new flooring. In my experience as an investor i notice they are not all that flexible on the list price if they clean them up. I had a couple of deals get rejected as they just did want to move enough off there list price.

 I've noticed this too, recently.

That's what I meant when I said "I'm getting priced out of the market."

@Patrick M.

I am getting priced out as well but i have a great agent who finds me other deals. I actually try and stay away from Fannie Mae for two reason one is the up pricing and as i do appraisal work for them i avoid any conflict of interest. 

@Chad Svendsen  

Does your agent find you off market deals? If so, how can I steer my agent toward looking in these areas as well?

Go Pack!

I would agree with @Chad Svendsen on the lack of flexibility regarding Fannie Mae pricing. It seems that when they put a bit of work into a property they tend to not come down much on price.

I would just suggest @Patrick M. to be patient and be diligent and deals will come your way.  Regarding auctions, do you mean the sheriff sale auctions at the 'courthouse steps'?  If so I would say there are good deals to be had, I have had success purchasing from them but you need to do your research in advance and have cash.  If you are referring to auctions like hubzu and homesearch those are just venues for mostly bank owned homes anyways.  Those you have to be careful with too as they have a knack for creating 'artificial demand' in the form of auto bidding and not necessarily making it super clear that you are sometimes bidding against your self.  There are deals to be had on those venues also, you just have to be careful all the same.  I have seen many 'deals' that were way overbid on these sites for whatever reason, whether it be the 'thrill of the auction' or the sense that there is a lot of people interested.  I feel this comes from inexperienced buyers on these sites.

Best of luck!!

It is a bummer that the banks are starting to do some of their own rehab work.  I've noticed this in the Raleigh market too.  Even worse, we just had a short sale rejected because State Employees Credit Union decided to do some renovations on the home and put it on the rental market instead of selling it to us.  Now they are in the landlording business as well!?  It wasn't even a lowball offer!

They have been doing it out here for awhile as they can get a much better return. If they appeal to VA and FHA owners than they are able to get market price.

Fannie has been painting and putting in new carpet in most all REO's here in Phoenix for years. I have even seen new 2 in. blinds installed. Thought they were doing the same throughout the country but evidently not.

This is what Fannie Mae said:  "We strengthened our credit loss management operations by adding 214 new full-time employees and a substantial number of contractors, and by hiring an Executive Vice President—Credit Portfolio Management. We also added 82 new full-time employees to strengthen our REO sales capabilities..."

That was in September 2009. FHFA became conservator on September 6, 2008.

The other fact is that FNMA (noicable about 2010-2011) did a 'better job' (my words) with UI property. Converting UI to IE via low $ field service work orders as part of their Loss Mitigation Efforts (page 8 of 2009 10-K) returned hundreds of millions to the FNMA balance sheet since 2009.

For those who are a 'bit concerned' as Patrick is, just remember that FNMA has repaid $134.5B of the $116.1B in draws they received. Of course now that their 'new book of business' is solid and they are profitable, congress will probably shut it down;)

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