Foreclosure Bus Tours: Foreclose Properties, Short Sales and Investment Property

Foreclosure bus tours are popping up all over the US, especially concentrated in the hardest hit areas like Florida, California and Nevada. The tours offer investors an excellent method to source foreclosed properties and to meet other real estate investors.

Maximizing a Foreclosure Bus Tour

Intelligent investors should definitely consider doing at least one foreclosure bus tour for the experience. While the properties may not be the perfect investments and the competition is obviously high given the fact that competitors sit in every seat on the bus, a tour offers something to all types of investors.

Shop around for bus tours. While this is not a huge industry yet, use the web to find the best tours and make sure to get testimonials and feedback. Don’t expect to go on the tour and find the perfect property. These tours run frequently and given the sheer number of investors looking at the properties, the best properties go quickly, while the worse remain in the pool to be overlooked by other investors.

Do not forget to network. The value of the bus tour will come in meeting other real estate investors and discussing real estate investments. Novice investors can get some hands on tips on how to evaluate a real estate investment property and more experienced investors might be able to find investment partners or future investment sources.

Investors should make sure they have a camera, notepad/pen, an investment checklist (current rents, neighborhood outlook, etc), and a list of key items to review inside the property (i.e., sound foundation, repair needs, deferred maintenance items, big ticket item needs).

Foreclosure Bus Tour Watch-outs

Avoid getting sold on the bus tour. The tour will inevitably be filled with realtors and other real estate product sales people attempting to sell everything from brokerage services to foreclosure seminars. A novice could see their $40 bus tour investment balloon to $1,000+ of classes and products that may not enhance their real estate business.

Also, avoid rushing through an investment analysis. Tours promote group think and investors often get caught up in what other people think of a property. Don’t trust another tour member’s analysis of the market and the property. Take copious notes and complete a thorough analysis before deciding to invest in any property.

Foreclosure tours are a must for every novice investor. Don’t expect to find the perfect investment property, but be open to meeting new people and learning more about real estate investing.

When is a “good deal” not so good??? Foreclosure Finds…

Wow–there must really be some “good deals” out there in the foreclosure marketplace!!! I am constantly being asked to give advice on what is or isn’t a good deal. My answer is complex…you see, what is a good deal for some is not necesarily a good deal for others. Buying a $50,000 home for $25,000 is great–unless the home needs $25,000 in repairs–then it becomes a “wash”…On the otherhand, if you are a construction worker and can do the repairs yourself with minimum cash output–it’s a good deal!!! Clue yourself in to deals that appear to be too good to be true–you know the saying…the same holds true for house hunting. I hate to sound pessimistic but as far as the average investor is concerned–if it was that good of a deal the real estate agent would not be calling you about it–they would have snatched it up themslve!!! Let’s just say…”been there, done that”! One question posed to me this week that I do not often hear is: “What about buying a home by just taking over that payments, no closing costs or anything BUT the LOAN in higher that the appraised value of the property?” HMM–this was a tough question. On one hand there is a financial benefit to not having to cough up all the closing costs..on the other hand, the house is not worth what you are paying for it. The question later stated that the rental income more than covered the payment—that’s a plus… I finally had to come to the decision that this was simply up to the desires of the buyer–how does this improve the investors portfolio? Another thing I advised the buyer to do is make sure there is no secon mortgate on the property–I suspect tht he is taking over the first and second mortgage. Also, make double-darn sure there is an attorney handling the title exchange–even if he has to pay for it!!!

The bottom line–use you head and common sense when making investment property purchases–do not get caught up in the excitement of the process–stay level headed and learn to walk away from properties you do not have a definite handle on!!!

Patrick Mackaronis: Foreclosures Affecting Real Estate Valuations

patrick mackaronis

Every month real estate foreclosures seem to either break a record or come very close. Foreclosures in the United States have become a very large problem for home sellers and more generally neighborhoods. Not only do they detract from the appearance of the block, but when on the market, they often sell for 20% to 30% less than similar homes not in foreclosure. The following is a guest post by Brabble CEO and Founder Patrick Mackaronis, based out of New York City.

Enter Patrick Mackaronis

Appraisal Issue

Foreclosure sales are recorded like any other sale, so when appraiser pull up comparable properties, they automatically incorporate these depressed sales into their market value calculations. For sellers, that means most home appraisals in areas with an above average amount of foreclosures will reflect a lower market value.

To further exacerbate this problem, consider the fact that appraisals are backward looking. Appraisers rely on sales over the past six months to a year to value properties today. That means that the market could be getting better today, but homeowners will still have to contend with the depressed home sales from six months to a year ago.

Furthermore, this problem creates a cycle of depressed value. If prices were lower than they should have been six months ago and appraisers reflect those values in their reports today, home buyers will only be able to qualify for loans based on that data. Lower mortgage amounts and appraisals mean lower sale prices.

Potential Solutions to the Appraisal Problem

First and foremost, sellers should always take the time to walk through their home with the appraiser. They should be quick to point out the items that differentiate their home from the competition (e.g., new kitchen, remodeled basement, etc.). Don’t be shy about telling the appraiser the actual cost of the work, as he/she will probably add that to the value of the home.

The other solution is to have a thorough understanding of the neighborhood when talking to the appraiser. Be sure to let them know which house were foreclosure sales or sales in distress. Appraisers are often willing to incorporate feedback, since their goal is to most accurately reflect the value of the home. Feel free to communicate this information to potential buyers as well. Some buyers do not feel comfortable buying foreclosures because of the potential risks associated with a home that has been without a resident for a long period of time.

Don’t forget to let buyers know that the house was cared for in every way. Provide a list of preventative and schedule maintenance. Any warranties on major items provided are also a bonus.

Sellers should never try to compete with a foreclosure on price. They will not be supported by an appraisal and they cannot compete with a bank selling the house at their mortgage value. Sellers should focus on the above strategy to differentiate their properties from the competing foreclosures.

Patrick Mackaronis can be found on Twitter at @patty__mack.

Foreclosure Purchase Expectations

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It’s sometimes trying negotiating a real estate purchase with a bank, loan company, or mortgage company as the seller. The institution seems non-caring and even illogical at times, but there are advantages that make it attractive; namely price. A buyer can save dramatically on current market prices by purchasing a foreclosure. Knowing what to expect helps to be prepared for the experience.

Basically a real estate foreclosure is a property that has been “taken back” by the first priority lien holder. This entity is usually a major bank, loan company, or mortgage company. The home owners have defaulted on the payments and maybe tried to sell the property as a short sale. The first priority lien holder will then start legal proceedings to “take back” or “repossess” the home. All subsequent lien holders like home equity line and second mortgage companies are out of luck with regards to debt recovery, plus the defaulting homeowners are out their initial down payment.

Most states in the US have been overwhelmed with a massive influx of foreclosures clogging the market and lowering prices drastically. It’s a great time for investors to get a great deal and there are distinct advantages and disadvantages of buying one.

Foreclosure Advantages

Prices and interest rates are at all-time lows: The real estate market works on the basic principle of “supply and demand”. When the market is glutted with supply, demand goes down and so do the prices. Not only do mortgage or finance company’s price the foreclosures under market, they also tend to “price war” with their competitors in the same local markets. Regular home sellers just can’t compete.

  • Liens: The liens are usually cleared through the legal act of foreclosure. Liens like mechanic liens, utility liens, old equity lines, and tax debts are usually cleaned up. This is different from a short sale, in which liens can pop up at any time and a buyer can easily get stuck paying them.
  • Repairs: The banks or mortgage companies will pay for major defects in a home that would prevent virtually anyone from getting a loan on the property, such as major termite damage or a flooding problem.
  • Timely manner: The institutions want it done and off their books. The escrow period is similar to most other real estate transactions, between 30-60 days.
  • Highest bottom line: The institutions want the biggest bottom line net for their foreclosures. An offer with a net of $100,010 with the buyers obtaining a loan can easily win out over an all cash offer netting the bank $100,000.

Foreclosure Disadvantages

  • Condition issues: A defaulting homeowner is stressed out trying to save their home and their credit score from a foreclosure. The poor homeowner has just “had it” by the time a legal foreclosure process is underway. They can be very angry and damage the property badly. Homes are often stripped of appliances, fixtures, and major components. There have been cases where cement has been poured down plumbing drains and fires have been set.

The lending institutions holding the foreclosures aren’t excited about paying for home inspections, warranties, or even turning the utilities on for a home inspection. In fact, even if the buyers agree to foot the bill for these costs, it’s hard to get a liability release from them to proceed.

Highest and best

Numerous banks and mortgage companies wish to create bidding wars for their properties. If several buyers submit offers at the same time, the buyers might be asked for “highest and best”. Meaning, it’s back to the buyers to better the deals with higher prices, shorter inspection periods, or removing contingencies.

Buying a foreclosure can be frustrating, but well worth the extra effort.