Dean Graziosi Real Estate Blog

A sluggish economy offers many bargains in real estate.  Recessions are typically accompanied by the increased availability of foreclosures for sale.  The ability to purchase homes at much lower prices makes them ideal for many investors.  Seasoned professionals have made fortunes from buying up foreclosures and then selling them at marked up prices.  However, there are some downsides to buying foreclosures that investors need to be aware of.  Here are three cautions that investors should heed when they’re considering making a purchase on a foreclosed home.

Hidden Repair Costs

Investors may find themselves spending more than anticipated on foreclosed homes.  Poor maintenance is a key characteristic of foreclosed property.  If the previous owners did not have the money to keep up with their mortgage payments, it’s certainly likely that they did not keep up with the maintenance.  Homes that have been abandoned by the owner often attract vagrants or vandals.  Banks are notoriously bad about maintaining foreclosed property, increasing the likelihood of neglect.

Some maintenance issues are a quick fix while others are costly to address.  The cost of rehabilitation can average $45K in some markets.  Even restoring one room can significantly add to the price tag of a foreclosed home.  The average cost of restoring a bathroom is $3,500 and a kitchen can average $6K.  These expenses should be taken into consideration when you’re looking into a foreclosed home.  

Declining Neighborhoods

Even good neighborhoods can have its share of foreclosures in a bad economy.  Still, too many foreclosures in one neighborhood can send negative signals to buyers.  This can create problems if your investment goals are short term.  It may take years before the stigma wears off and buyers are willing to take a chance on your property.

A high foreclosure rate may also point to other community problems that buyers are typically wary of.  If the home is located in low-income community, this impacts your ability to sell the home in the future.  The neighborhood is likely to lack quality public schools and employment opportunities – things that buyers look for when deciding to purchase a home.

Inaccessible Financing

While foreclosures are sold for lower prices, finding financing can still be difficult.  Many banks will not provide funding for homes needing extensive repairs.  Some lenders won’t provide loans on foreclosures altogether.  It’s important to have a clear plan on how you will finance your purchase.

Foreclosures can still offer great opportunities for investors.  Research is the most effective tool in avoiding money-draining properties.  Bringing an experienced contractor can help you catch maintenance issues that would normally be overlooked.  Researching the neighborhood and your financing options will help you determine whether a foreclosure is a good investment for you.  If you are willing to take some of the risks and can overcome the obstacles, a foreclosure may prove to be an excellent investment.  When purchasing foreclosures, the potential for profit can outweigh many of the pitfalls. 

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Selfish mortgage practices and unscrupulous loan officers  have left the state of Florida in real estate hell. Congress has acted upon the publics distress by passing several legislative acts to assist struggling home owners. The most popular being,  President Barack Obama’s much advertised plan available at his websites, http://www.obamahelpforclosures.com, and the home recovery act website, http://www.homercovery.org.

The Impact of Florida’s lending Practices and Foreclosures

The Center for Responsible Lending, available at http://www.responsiblelending.org, an organization committed to protecting home ownership and family wealth, staked Florida’s 2010 foreclosure projections at 1,482,279. Florida’s high foreclosure projections, thankfully, doesn’t spell the end. While, the pan handle state did project almost 1.5 million foreclosures in the state, the number of foreclosure sales is relatively small, reaching only 112,836. Florida’s low foreclosure inventory, when considering its projection rates,  is equally impressive. Only 484,421 homes remained in the states unsold category at the end of 2010’s first quarter.

The state’s total past due mortgages is a million, all by itself. When looking at the numbers presented by Florida, just for the first quarter of 2010, it’s easy to see how they came to their current sky-high foreclosure projections. When the first quarter of 2010 came to a close the state of Florida posted 875,869 past due mortgages. Florida, expectedly, had a major change in foreclosure starts. Using the time frame of the past 4 years, 2006-2010, Florida has had an overall foreclosure increase of 731 percent.

As the result of all these drastically changing factors, the average loss, per home, for the pan handle residential real estate market was $41,271. The total loss of wealth due to Florida’s foreclosures, across the years of 2009-2012, is projected to be a real estate zeppelin, in the $330 billion range.

The Impact of Texas lending Practices and Foreclosures

Texas has done surprisingly well, enduring the burst of the housing bubble. Texas has had a medium rise in foreclosures as compared to the rest of the large states in the country. Between the years of 2006 to 2010, Texas foreclosures have risen 67%. At the end of the first quarter of 2010, Texas had survived 204,464 foreclosure starts. This was quite a feat, just of itself.

Over the same period of time, the state only sold 67,669 of its foreclosed homes, leaving Texas with a inventory of just under 65,000 foreclosed homes. The annual loss per home in Texas, was recorded by the state, as relatively small $3,030. In the end, Texas residential real estate compiled a total loss of $20 billion. As of the last quarter of 2010, Texas is embarrassed by its total of 337,620 past due mortgages. The number of private homes in nearby foreclosure in Nevada, are 6,596,254, an outrageously high number for such a low loss per home.

This shows that the cost of doing real estate, with the right agent,  in Texas can still be worth its weight in housing gold.

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Selfish mortgage practices and unscrupulous loan officers  have left the state of Florida in real estate hell. Congress has acted upon the publics distress by passing several legislative acts to assist struggling home owners. The most popular being,  President Barack Obama’s much advertised plan available at his websites, http://www.obamahelpforclosures.com, and the home recovery act website, http://www.homercovery.org.

The Impact of Florida’s lending Practices and Foreclosures

The Center for Responsible Lending, available at http://www.responsiblelending.org, an organization committed to protecting home ownership and family wealth, staked Florida’s 2010 foreclosure projections at 1,482,279. Florida’s high foreclosure projections, thankfully, doesn’t spell the end. While, the pan handle state did project almost 1.5 million foreclosures in the state, the number of foreclosure sales is relatively small, reaching only 112,836. Florida’s low foreclosure inventory, when considering its projection rates,  is equally impressive. Only 484,421 homes remained in the states unsold category at the end of 2010’s first quarter.

The state’s total past due mortgages is a million, all by itself. When looking at the numbers presented by Florida, just for the first quarter of 2010, it’s easy to see how they came to their current sky-high foreclosure projections. When the first quarter of 2010 came to a close the state of Florida posted 875,869 past due mortgages. Florida, expectedly, had a major change in foreclosure starts. Using the time frame of the past 4 years, 2006-2010, Florida has had an overall foreclosure increase of 731 percent.

As the result of all these drastically changing factors, the average loss, per home, for the pan handle residential real estate market was $41,271. The total loss of wealth due to Florida’s foreclosures, across the years of 2009-2012, is projected to be a real estate zeppelin, in the $330 billion range.

The Impact of Texas lending Practices and Foreclosures

Texas has done surprisingly well, enduring the burst of the housing bubble. Texas has had a medium rise in foreclosures as compared to the rest of the large states in the country. Between the years of 2006 to 2010, Texas foreclosures have risen 67%. At the end of the first quarter of 2010, Texas had survived 204,464 foreclosure starts. This was quite a feat, just of itself.

Over the same period of time, the state only sold 67,669 of its foreclosed homes, leaving Texas with a inventory of just under 65,000 foreclosed homes. The annual loss per home in Texas, was recorded by the state, as relatively small $3,030. In the end, Texas residential real estate compiled a total loss of $20 billion. As of the last quarter of 2010, Texas is embarrassed by its total of 337,620 past due mortgages. The number of private homes in nearby foreclosure in Nevada, are 6,596,254, an outrageously high number for such a low loss per home.

This shows that the cost of doing real estate, with the right agent,  in Texas can still be worth its weight in housing gold.

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With the abundance of foreclosure activity in the U.S., the promise of buying low and selling high is alluring.  There are currently 1.5 million foreclosed homes in the real estate market.  The success of investors is largely dependent upon their ability to implement astute purchasing strategies.  In the frenzy, it is easy t get overly excited about the possibilities.  For that reason, a disciplined approach works best.

·                     Hold Your Line – Foreclosures often end up in bidding wars.  Never be stubborn.  Establish your purchasing guidelines and stay with the framework.  Do not be afraid to walk away.

·                     Build Lender Relationships – Lenders want to sell.  They dislike holding properties and incurring carrying costs.  As a result, the lenders slash prices.  If short sales fall through, which many do, lenders like to have known purchasers ready to move.  Having strong lender relationships can lead to acquisitions outside the bidding process.

·                     Be Ready to Repair – Banks offer homes at reduced rates to be rid of the property.  Purchasers buy in “as is” condition.  Most likely there will be necessary repairs.  Have your repair team ready to go.

·                     Inspect With Contractors – The best time to know what your repair costs will be is prior to negotiating the sale.  Request an inspection with the contractors of your choice.  As you purchase in “as is” condition, it is your responsibility to know how and at what cost repairs will be made.

·                     Retain An Attorney – Add a real estate attorney to your team.  There are attorneys who specialize in foreclosure acquisitions.  This is not an area to cut corners.  A good real estate attorney will help make your venture profitable.

·                     Be Patient – Do not be in a hurry to submit your bid.  The initial bidding will set the tone.  If the opening bids are too high, walk away.

·                     Pre-arrange financing – Lenders only sell to qualified bidders.  Align your financing in advance and be prepared to present letters of commitment at the time of bidding.

Follow these tips and make money in the most active foreclosure market in years.

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Yep, you heard right! We are putting together another useful foreclosure tool for all members of the site. Best of all… it’s free.

We’ve heard the questions many times… How do I find out if property XYZ is in foreclosure or not? How do I find out which foreclosures in area ABC are in foreclosure?

We’ve always offered Foreclosure Alert, which is a seriously powerful foreclosure finder/research tool. If you need serious foreclosure research, that is the tool to use. However, we are releasing a light-weight tool to do simple foreclosure research, for free.

You will be able to ask this tool if a property is on the books as a foreclosure and it will tell you if it is or isn’t. You can also get the ten most recent foreclosures for an area, by zipcode, city, county or state.

What’s the catch? There is none! Well, almost none… to use the tool you need to be a registered member of the site (which is free - most of you are already, but if you are not, register now). The other small catch is the “recent foreclosure” part of the tool doesn’t list the actual the actual house number, just the street. That is the one piece of data we could not get for the free tool. The good news is we can map it on a map and you should be able to determine the house number by comparing the map to a Zillow map, or other maps that show house addresses.

Also on the roadmap is to add the functionality to our free real estate research system, TotalView Real Estate.

Again, make sure you have are registered member of the site AND logged in, otherwise you will get a “access denied” message:

Use the tool now!
http://www.deangraziosi.com/content/foreclosure-research-tool

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