me-jim-and-andy.jpgOver the weekend, myself and Jim Barclay, Shirley International all-star Commercial Sales Rep, attended a convention in Orlando educating us on buying/selling Short Sales & Foreclosures. The symposium was presented by Andy Tolbert, an extremely savvy real estate broker rep. located in Ocala, who specializes in Short Sales and Foreclosures. She probably buys more of these types of deals, than lists and sells them, so her input was very objective backed by years of trial & error on how to do transact the purchase perfectly. The Short Sale market is certainty a niche with tons of opportunities to buy a home at bargain prices. With our economy looking grim, these are the types of bargains I’ve noticed buyers/investors looking to get into, so its important we understand the “ins & outs” of that process. However, this post is specifically geared toward the foreclosure market, as I see the endless opportunities to get rock-bottom priced real estate.

First of all, its important to understand exactly what a foreclosed property is. A foreclosure is defined as real estate that is being taken back by the lender or government due to failure to pay the mortgage of loans. This is a long and tedious legal process for the banking institution, so when it is ended they are interested in selling it off right away, or “dumping” the property, to get the proceeds and apply to the terms of the contract. Interesting.. This is where the root of the opportunity lies.. The bank if motivated & operating with a sense of urgency (Rule #1 in obtaining a “deal”.. Find someone who is operating with a sense of urgency!) However, don’t let the sad reality of the current owners’ situation push you away from these types of transactions.. Foreclosures are more common in our market now than they have been in years past, so having qualified consumers to take the pressure of the back of current owner, while “turning the frown upside down” on the banks face, is a very positive thing for cleaning up this excess inventory in our congested real estate market.  

So, Where to find these types of deals? The internet is a great source for obtaining foreclosure listings. Here is a website I use to comb track down great deals in Sarasota (www.realtystore.com). Also, there are many brokers and licensed realtors that specialize in foreclosure listings. I am not one of them, BUT, I can be a valuable resource as I have a number of great relationships with local banks & loss mitigation departments, as well as extensive knowledge in this real estate genre. These sources will lead you to the venue of the potential “Golden” deal, so utilize them.

Now, what to do when I find a home I think may be a great deal? First of all, what is a great deal? I would suggest performing Comparable Market Analysis, or ask a local real estate professional to do this. (I am not an appraiser, but I do have a reputation around the office as, “The CMA King!” I do a heck of a CMA..) A CMA will give you a range of values that suggest the value of a piece of real estate. It is not an exact number like an appraisal, it is only a range.. The better the CMA, the tighter the range.

Next, I would ask myself, what’s the purpose of this purchase? Investment? Primary Residence? You have to clearly define your goal when purchasing a foreclosure. Some of these homes need quite a bit of work, as the past owner was aggressively trashing the place while not making payments either.. However, doesn’t mean a little TLC won’t bring the shine back to the property and value has been restored. You will see many investors attack this market because of the opportunity to sink some money and sweat equity into a property and flip it for a profit. One of my best clients flips these properties for a living and makes great money, in any market, and has done for years. Again, even when the market is slow and the economy is down, the foreclosure market can be very profitable and a consistent source of income. The flip side of this is, even a property that looks perfectly priced for profit taking, will sink your bank account after the cost of repairs is taken into consideration. This is why research & establishing a goal up-front is paramount.

Next, secure your financing before making any offer on a foreclosed property. Due to deliquent payments by homeowners & speculators overextending themselves on purchasing leverage, banks are very grumpy about underqualified consumers anyway. So, to avoid the hassle and confusion of what can I afford, I would suggest securing the financing for the deal before hand. This will sweeten your offer a bit and relieve the lender of the foreclosed home that they have found qualified money to fulfill the existing contract on the foreclosed home.
Next, make a reasonable & realistic offer. Reasonable would be offering 70-90% of the market value of the home. This will provide plenty of cushion to flip for profits, or just enjoy the equity you just earned your new purchase. However, I have seen properties go for 50% of the market of the home. Keep in mind, you are dealing with the bank here and they are not in a position to milk the current status of this market for profits. They are simply looking to recover what they have lost from the deficiencies of the last owner. This could put you in a money-making situation. For example: Deficient owner buys property for $500,000. They put down 20%, and have been paying in a conventional, amortized mortgage payment plan for 2 years. The current loan balance is $378,000 & with the depreciating market the home is worth $325,000 today. (175k less than what they paid for it 2 years ago.. Pretty common in our market) So, you offer about 85% of the value of the home, $275,000, and your offer is accepted.. You now have $50,000 in equity for a potential flip for profits, extra money to pull out of the property and upgrade the home to add value, or move in and enjoy your bargain & brag to friends. Again, the key here is research. If you know what how much money is owed on the property, then that makes it easier to establish a reasonable value to offer for the home. Keep in mind, today there are homes for sale through the foreclosure process you can buy for 50% of the current market value.

In conclusion, do your research and take time to establish goals on what you are looking to do with your new purchase. With our economy on the downtrend and millions of deficient mortgagees, (recipient of the mortgage.. The owner), even in the toughest times, purchasing a foreclosure can put money in your pocket and give you the satisfaction of scoring that bargain everyone is looking for!

1 in every 313 homes are being foreclosed on.. Take advantage!

Justin