In their first quarter report for 2020, ATTOM, a data solutions provider for real estate and property data, reported that there were just over 156,000 foreclosure home filings in the first quarter of 2020. This was a 3% reduction from the same quarter in 2019. The housing market has changed dramatically since that report was assembled. We are now in the throes of Coronavirus with the economy largely shutdown nationally. We are facing record unemployment. Even at the time ATTOM called out areas of New Jersey and Florida as particularly at risk for an increase in foreclosed homes.
While many states and even the federal government have various forms of relief from foreclosure and court systems are hindered by CoronaVirus protections, this slowdown of foreclosures and expected to be temporary. Financial experts expect foreclosure numbers to increase with growing infection numbers and continued economic and employment challenges. Some of the worst forecasts set foreclosed homes at 20 to 30%, rivaling the financial crisis of 2008. So far, those forecasts have been held down to about 8%, but this has been through legal limitations and financial stimulus.
Of course, for homeowners, this is tragic. Much like we saw on the tail of the 2008 financial crisis, this can be an opportunity for investors. The prepared investor could benefit on the heels of this as things change. They will need the right capital and be carefully watching. Let’s take a look at some of those options.
As the foreclosure machine gets going, there will be a lot of opportunities for creative and driven investors. One of the most straightforward is to buy a foreclosure from the bank as a Real Estate Owned (REO) property from the market. These are often Realtor.com or Zillow or even search engines that specialize in foreclosed homes. These are bought much like any other home, except that they often aren’t in the best state so getting bank funding may be more difficult. This can be an excellent way to get a property below the market value.
However, this isn’t the only way you can benefit from foreclosed homes. Often, sellers that are being foreclosed on are very motivated sellers. Using techniques like driving 4 dollars and looking for homes that aren’t kept up or watching land records, bandit signs, and Facebook ads using the common “we buy homes” that are targeted to pre-foreclosure homes” can be great ways to find motivated sellers who want to do anything they can to get out of their house and limiting the damage to their credit.
A short sale is when a lender is willing to take less than the loan amount to recover anything on the property. This often burdens the seller, who needs to coordinate with the buyer and the bank, who has a right of refusal to a deal. In this case, the seller is selling the property for less than the loan amount because the property is underwater, or the seller owes more for the house than the house is worth. The bank knows this too and doesn’t want to be a property owner, so they are sometimes willing to write off that difference. They want to minimize their loss, though and you, as the buyer, end up in the middle. In this case, you have a motivated seller with a sales process that can be a hassle, and you are in the middle. If you’re willing to put up with that, it can help you get a good deal to flip the property, hold it as a rental or redevelop it.
In some areas, the house may get caught up in a sheriff’s auction, which means that the property is auctioned by the government after the borrower has defaulted. You can often find out about auctions in your local paper, websites, or word of mouth. Many investors have gotten great deals but this has a lot of risk because it’s usually an all-cash deal, and the property is sold as is, so when you buy the house and find out it’s missing the second floor, it’s your house now. These can be great deals for foreclosure homes, but be careful.
Government Owned Properties
Many loans are guaranteed by government organizations like the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). When the borrower defaults, these organizations end up with a foreclosure house they don’t want. So, they need to get rid of it. There are brokers and websites, like HudHomesUSA that sell these houses. You can find a list of sources here. This is another opportunity to find foreclosure homes below the market.
Foreclosure homes can be a great opportunity for investors. They can be a great way to get a property below market. They are not without risk but if you can stomach the risk, they can be a route into getting a property cheap for flipping or for using as a rental property. These are often cash deals and are usually as-is, so investors need to make sure that they are prepared to do work on the property and wait out any return.
Not Without Risks
Foreclosure homes can be a great opportunity for investors. They can be a great way to get a property below market. They are not without risk but if you can stomach the risk, they can be a route into getting a property cheap for flipping or for using as a rental property. These are often cash deals and are usually as-is, so investors need to make sure that they are prepared to do work on the property and wait out any return. They’ll need extra cash available after the deal to invest in the property and the right skills or contractors to get the work done.
With all that in place, investors stand to make some good returns as the current economic conditions come to a head.