Foreclosures- What's the Deal???

No one with a pulse could miss the news about the "Foreclosure Crisis" we are facing as a nation, and particularly here in S. Florida. Seems like the gurus of late night tv who teach you "how to make millions in foreclosures", or whatever the spin, will be really raking in the cash, and a whole lot of people will be without a home of there own. There are several factors that are causing the foreclosure rate to more than double in the last few years. A few are:

ARMS (Adjustable Rate Mortgages) adjusting Homeowner's mortgage payments beyond their ability to pay: As we all know the housing market of a few years ago seemed like anyone could buy a home anywhere no matter what. It was crazy. People making $35,000 each year bought homes for $450,000 and felt great about it. Everyone you knew just bought or sold something. Things were just wonderful....or were they? I know ARMS can be very helpful tools in the right hands. Just like a clay in the potter's hands. The problem is a lot of people didn't realize what they were buying into. Maybe they believed they would be making more money by the time the payments adjusted? Most likely they thought the value of the home would continue to rise until they could just sell for a profit and not ever have to pay the piper.

Then there were those poor souls who didn't even understand the terms of the loan at all. Maybe the mortgage broker didn't really educate them enough, or they didn't do their own homework, either way they lost out and are now paying for it big time.

The "Investor Epidemic": Who can forget the times when, if you didn't have a friend or family member who became a "Real Estate" investor, you would in a matter of weeks. According to statistics (please forgive me, I forgot which source they are from) from the last quarter of 2003 to the first quarter of 2005, 40% of all sales were investor bought properties. They were under the same impression that homes prices will continue to rise and they can make a profit. Really who could blame them, everyone that bought around that time made out like bandits didn't they. Either way a lot of these homes may still be on the market or possibly heading to foreclosure if they haven't already gotten there.

With that said the Foreclosure Crisis we are facing doesn't appear to be ending for at least the next few years. So if you are thinking about finding "good deals" in these properties then do yourself a favor and ask yourself this:

Are Foreclosures Really Good Deals???

The answer of course is...it depends. First, you need to identify for yourself, what makes a deal good? Good price? Good Condition? Good Terms? Some combination of the three? Most people have heard the hype on late night tv and in the media about how others have "effortlessly obtained homes for pennies on the dollar". Does this really happen? Sure it does. Is it as easy and often as they might lead us to believe? I don't think so. There are certainly a number of properties today that can be a "good deal" for most buyers and investors since our number of foreclosures are through the roof and there is an already large supply of homes for sale apart from them, but then you need to ask yourself when is the best time to buy?.....

  Pre-Foreclosure vs. Foreclosure Auction vs. Bank Owned Properties (REOs)

There are a few different times you can purchase a home during the "foreclosure" process. You can buy it from the homeowner before it goes to the foreclosure sale at the courthouse steps (pre-foreclosures), at the auction, or from the bank who foreclosed on the property which become part of their "Real Estate Owned" portfolio (REO).

There are upsides and downsides to each, for example:

There are usually bank required addendums that will be utilized when buying an REO which can scare some would be home buyers. They are not to be feared if you understand what is required of you and the terms they contain. They also don't allow the contracts to be assignable (investors) although there are other ways around this issue as well, but even then it sure beats having to come up with cash to buy the property at the courthouse steps, and take a risk with the title to the property, if you don't do your homework correctly regarding any leins that survive the auction sale.

The good side to the "Pre-Foreclosure "opportunity is that you, the buyer, are dealing with the Homeowner directly. It can be a very good opportunity to not only buy the property at a potentially good price, but also see that you really are helping someone out in the process. Contrary to some people's beliefs this is the stage in the game where you can help save someone's credit, self-esteem, and maybe give them a hope at a new start.

You may run into a problem if they owe more than the home is worth , unless they are going to pay the difference. You would then have to try and execute a Short Sale with the lender to purchase the property for less than what is owed to the bank.

The important thing to remember is that just because something says "Foreclosure" or "Corporate Owned" or whatever term is used, it doesn't make it a good deal for YOU.

First things First.....

When thinking about buying a foreclosure, or any home for that matter, make sure you know what your goals are for the property BEFORE you make the offer!!!

Just remember that, "if you fail to plan you plan to fail", at least most of the time anyway. Even for the clients I work with, I don't show someone an investment property that needs $30K in rehab costs and a lot of out of pocket expenses if I know they don't have much money to put into the deal readily available. They may say they want the property and it's a great deal (which it is just not for them at the moment) since it's being sold for $125,000 and would be worth close to $225,000 after the rehab, but without the rehab money available or money to hold the property until it sells, I don't feel they are making a wise decision for themselves.

This is where you need to plan for your own situation, NOT anyone elses, YOURS. Find out what a good deal is for your situation:

• Do you need a home that is priced fairly, but is in an area you'd like to live, or invest in?
• Maybe you don't mind doing a ton of work if the price is right?
• How about looking for something that will provide a good rental income that can supplement your current income?

 The point is that no one knows what makes anything a good deal for YOU, except YOU and those who you share your criteria with (Realtors, other investors, etc.)

There are so many different ways to purchase property to live in, or invest in, via foreclosures or other avenues that this first step is what will give you the confidence to know what a good deal is among the many homes that will cross your desk. There really isn't time to look at all of them and sometimes sending and offer to a bank can take weeks to get a response, even a NO. My advice is to find a Realtor who has access to these types of properties and allow them to save you a whole lot of the learning curve (as well as time, energy, gas, and headaches too) in this new venture and I think you'll be glad you did.

If you are looking in the Broward County or Palm Beach area for Foreclosure properties or just had a question feel free to email me at dustinrm@gmail.com and let me know what you're looking for. I'm glad to help and there is no cost to you.