If the USA is in the midst of a housing recession, there must be a lot of good opportunities in the foreclosure? Is anyone making money in this area at the moment? Or is it too early to go back into real estate yet? Forgive my ignorance, but i'm from the UK so dont know what the true reality of housing, on an anecdotal level is in the USA just yet.
Foreclosure buying can be profitable under the right circumstances. Foreclosure involves a forced sale, as distinguished from a voluntary sale, and property owners may lack the resources to effectively defend their equity. The profit potential is in grabbing that equity before or during the sale. But if there is no equity, as in cases where the loan is above about 90% of property value (due to poor lending standards or slumping house prices), there is no equity to be had, hence no profit potential. Sometimes you can get the lender to accept partial payment for release of the debt, termed a "short-sale" (which is not at all like a securities short sale) and gain some equity that way. Some investors like to buy properties in pre-foreclosure from the propert owner. If the property has good equity, there is a lot of competition from other buyers, many of whom are unethical. States have been enacting new laws to control the abuses. Foreclosure buying require substantial expertise, considerable amounts of cash, and usually involves massive risk. It's not for the faint-of-heart. Unlike the stock market, there is no quick, easy money there.
Thanks for your good post. Its different then to the UK repossession market. What kind of unethical abuses were going on in this market that you touched on?
One of the more common abuses is called "equity skimming". The investor takes possession, then puts renters in the property. He keeps the deposits and rents, and pays nothing toward the mortgage, taxes, insurance or maintenance. The lender, tenants, neighbors, and possibly the former owner are all victims. Other abuses involve telling falsehoods to the seller or lender, psychologically abusing the seller, committing all sorts of fraud, etc. I'm sure there are many more yet to be discovered. I'm just not devious enough to think of them all. Pre-foreclosure buyers are an unsavory bunch for the most part. The few honest ones are at a disadvantage.
Need to watch out though many of the people foreced out in the foreclosures have been "trashing" the houses as pay back to the banks. You may end up with a large repair bill just to get it liveable again.
Ok thanks for the heads up. So are there any cities in the USA which offer good value for money, in good neighbourhoods? As a british investor i can get $2/£ at the moment, which historically is a good level. I cant see it being this high next year.
I say wait and see if the other vultures run out of money, first. Once they are out of money and credit, prices will really drop. There are just too many homes already on the market, plus still more being built, plus all the ones that will be walked away from and foreclosed.
I am a Realtor in FL, there are many condos and houses here on MLS that are bank owned. So the house has already been forclosed on and title has now been transfered to the bank. They are trying to sell it like any other property. There is nothing wrong with most of these places and you do your home inspection just like any other sale. I buy them personally. Ask me whatever you would like. But in my opinon you need to have the courts forclose on the house so title can be transfered. Short sales take months and months becasue the mortgage was split up and sold in pieces sometimes. And if one of the lien holders wants their money in full and rejects the sale even though the primary lien holder OKed it, your back to square one. This all messes up title becasue everyone wants all their money back, and the liens on the property will make it unprofitable. I do believe there is money in buying bank owned properties if you do your homework and know the area you are buying in.
Probably the biggest problem is real estate investing today, and especially in foreclosures, is the overwhelming number of properties affected. There are undoubtedly bargains to be had, but finding them requires much time, effort, and expertise. Possibly the best deals right now are in post-foreclosure buying. When the forced-sale occurs, the minimum bid is the amount of the debt. If nobody bids, as when the debt is above 90% of the property value, the lender becomes the winning bidder. If the lender is an institution, the property is placed in the "real estate owned" (REO) portfolio. REO's are then sold for the best price they can get. If the institution is desperate enough, sometimes you can get good deals. But they can also be remarkably bureaucratic. Again, knowledge and skill make all the difference. For the OP: Real estate in the United States is governed almost exclusively by state law. There is considerable variation, though states do copy one another. I suspect that is more from laziness than desire for uniformity.:eek:
I also say dont feel bad making a low ball offer to a bank. If you know the market and have a price in mind you stick with it. You make your offer and the worst they say is no. If its still on the market in a month make it again. I dont think banks can use homes as collateral to get money, if someone knows this please let me know im curious. So they are inclined to sell at a low price because they now have cash which they can borrow against.