Do not believe the news when you hear about foreclosures going away. Given the high rate of short sales, unreleased properties and those that are going to foreclose, there will still remain buying opportunities at all price ranges. The mortgage crisis, spurred by no money down purchases, initial low interest adjustable rate mortgage (ARM) loans and easy access to credit, many people bought properties in the last five years that now can not afford them got us into this situation. Also, as short term interest rates begin to rise, ARM loans, which have been more sensitive to interest rate increases, will fuel the next bunch of foreclosures.
The need for rapid sell off and higher supply than demand have caused prices to readjust. In some areas prices have come down more than 50%. Although, most of these properties are under $500,000, there are quite a few over $1 million. In McLean there is a foreclosed property under contract asking $2.5 million that sold for $6.5 million in 2005. So there are opportunities in almost every price point. Buyers looking at these properties need to focus more on upside potential than on having everything in the property be exactly what they want in a home.
This situation has affected about 1% of Virginia real estate, but the numbers are high enough to have an impact on the real estate market. For the investor this means that there are some good properties to buy, hold and rent, be cash flow positive and with higher than most likelihood for appreciation. But…. some properties can be a money pit! One must find the right resources to find the better properties.
Foreclosures
When a homeowner stops paying their mortgage, a lien holder will begin a legal foreclosure procedure to protect their interests in the property. The legal jurisdiction will auction the home to the highest bidder, which will generally be the lien holder, so as to minimize their loss. Once the lender takes title to the home, they then sell it as a REO (“Real Estate Owned”) or "Bank Owned" property. Although, property owners who let their homes foreclose have little incentive to leave it in good condition, there are opportunities wherein they are left in good condition. But there are many stories where home owners have caused much destruction to their homes before finalizing the foreclosure process. It is important to view the property before making a purchase decision.
REO/Bank Owned Properties
Once the bank or lender re-possesses a home, they sometimes bring it back to an "acceptable" sales condition with paint or carpet, and at times minor repairs. Then they list it for sale with a Realtor. Since banks do not want to own properties, these are some of the best buys in real estate, providing the buyer is prepared to accept them in the condition they see the property. Banks rarely make further repairs once they are for sale, hence any updating or improving is for the buyer to do. Negotiation is key and I have been able to have the banks make some needed repairs for a few clients that have purchased these properties. I do have access to all REO/Bank Owned properties in Northern Virginia, DC & suburban Maryland, including HUD homes. If you are serious about buying this type of a property, contact me to help you find one.
Given the current lending situation, unless you are buying as a principal residence and use your VA qualification to obtain a 100% loan, or an FHA loan that provides 96.5%, be prepared to provide at least 10% as a down payment on the Contract price. If you need help with financing, you can work with many of the lenders that I can provide to get you financially approved to strengthen your negotiating position. Also, you need to be sure that you are provided "Marketable & Insurable Title" as many of these properties will only provide you "Insurable Title" when you use the Settlement agent that the seller provides. This would expose you to not only any other liens that may be on the property, but could be a hindrance when you want to sell in the future.
There is much more to learn about taking advantage of these opportunities than detailed here. I have the answers you need, or can get the answers, and can represent you in the purchase of property. Please complete the form below, or call me on my mobile at 517-233-0581, and we can arrange a meeting to discuss how we can get you a great deal.
Complete the following form only if you have a serious interest in buying REO or Bank-Owned properties.