Friday, November 21, 2008

The Top 6 Mistakes of Foreclosed-Home Buying

Nothing illustrates the devastation of America's housing bust more vividly than the abandoned properties now blighting the nation's communities. In the third quarter alone, foreclosure filings were reported on more than 750,000 properties in the United States, a 71 percent increase from the same period last year, according to RealtyTrac. But for real estate investors, one person's tragedy can be another's good fortune. With so many foreclosures on the market, "this is a once-in-a-generation opportunity for many people," says Steve Dexter, a foreclosure expert and author of the forthcoming book Buy and Hold Forever-Building Real Estate Wealth Far Into the 21st Century.

Still, the purchase of foreclosed property—an often complex and involved process—presents would-be buyers with plenty of opportunities to make costly mistakes. In an effort to help consumers avoid such pitfalls, U.S. News spoke with a handful of experts to create a list of six common blunders that individuals make when attempting to buy foreclosed properties.

1. Flying solo. While enterprising do-it-yourselfers can certainly get away with going through the traditional home buying process without an agent, foreclosed real estate is another matter. Such complex transactions require the expertise of not just any real estate agent but one with a background in buying and selling foreclosed homes. "In today's uncertain times it's important to be working with someone who has been through market cycles before," says Patrick McGilvray, president of TheHomeBuyingCenter.com, which links homeowners and owners of foreclosure real estate with potential house buyers. So unless you are truly a real estate expert, do some research and find an agent with foreclosure experience in your market.

2. Being unfamiliar with the law. It's important to remember that real estate agents aren't lawyers, and foreclosure laws can change significantly from state to state. "A lot of people don't realize [that] foreclosures are heavily regulated and every state has its own set of laws," says Alexis McGee, the president of Foreclosures.com. "If you don't have the language proper in your contract, or if you have even the font size wrong, it's criminal and civil damages-don't count on every Realtor knowing this." As such, McGee advises against relying on a real estate agent for legal advice. Instead, consumers should review the foreclosure laws in their state and then get qualified legal advice from a local real estate attorney.

3. Thinking short term. Since many foreclosed homes may decline further in value in the coming months, it's important that buyers approach the transaction from a long-term perspective." If you are not looking at a piece of foreclosed property from a 10-year time horizon-as an investor or as an owner occupant-then you will likely suffer," McGilvray says. So if you are just trying to cash in on a quick flip, don't buy a foreclosure. Only investors with the resources and patience for a long-term real estate investment and homeowners who can afford a fully amortized fixed-rate mortgage should consider buying foreclosed property, McGilvray says.

4. Seeing only the sticker. While the price you negotiate for a foreclosed home may be significantly less than its value just a few years back, many such homes may require substantial repairs. McGilvray says that anyone buying a foreclosed property should make sure to set aside an additional 10 percent of its price tag for repairs. "Make sure you have 10 percent, especially if the home is a few years old," he says. "It is amazing how quickly houses can deteriorate." Prospective buyers should keep these additional repair costs in mind when they are negotiating the home's price.

5. Searching too broadly. With so much inventory coming onto the market these days, it's easy for buyers to become overwhelmed. To that end, Dexter recommends that anyone in the market for a foreclosure target a specific neighborhood and contact an agent with experience there. Make sure to specify the type of property you are looking for in order to avoid being inundated with listings. Tell the agent, "I want all these kinds of houses in this neighborhood that are bank listings [and] I want to know about them all as they come on the market," Dexter says. The agent will then be able to shoot you all the listings that meet your requirements as they become available. "If [the buyer is] patient enough and they get plugged in to the flow of new bank listings coming in, they can pick up some awfully good deals."

6. Taking no prisoners. While buyers can certainly get good deals on foreclosed homes, it's a mistake to assume that banks will accept any and all offers. (Unless, of course, the listing specifically says so.) Banks aren't set up to sell houses, so they typically outsource their foreclosed properties to real estate agents, McGee says. In such cases, agents can receive listings in bulk, perhaps 50 at a time. While these agents want to get the properties sold off quickly, they also want to get a good price for the seller so that the bank will give them additional business in the future. "Saving face is important for them," McGee says. "A lot of people just assume that because this property is bank-owned they will just take half off. Well, that's just not true." As such, insultingly low offers have the potential to tank the negotiations over foreclosed homes, McGee says. So make sure you present your wholesale offer case well both in writing and verbally with the listing agent.

Article Written by Luke Mullins, U.S. News

 

Surviving and Selling in a Slow Market

In a country crowded with timid real estate investors chased into the dark by finger-wagging politicians and doomsday predictions from perpetual renters, Kirk Leipzig is swimming against the flow.

“This is the time to buy, and to make a killing out there,” said the Tennessee-based investor. “But you need to totally understand your market and educate yourself daily on your market. Then go buy, buy, buy.”

What’s most surprising about Leipzig is that he is not buying and holding — as many experts recommend in a down market — but buying and flipping.

“All the properties I currently buy are for flipping only,” he said, acknowledging that he always has a backup plan because of the difficulty selling in the current market. “I always buy a property now to flip, but in the back of my mind I know I can lease-option it, or rent it if it does not sell as quickly as I would like.”

The two properties Leipzig most recently purchased were appraised at $700,000 and $750,000 but he bought them for $450,000 each, giving him enough room to “fire sale them out and make a great profit easily.”

“I went in and did a punch list, and staged them, and they are beautiful 4,200 square-foot homes in the best city in the county.  I have an offer on one of them now, and I just put them on the market one week ago yesterday,” he said. “I will make, after realtor fees, holding costs, closing costs, etc. $185,000 in two weeks.  Plus the new homeowners will have $75,000 equity in the house immediately.  Everyone wins, and that is how you sell in this market. Find the win-win and everyone truly will win.”

The downside of a down market
But flipping in a slow market comes with more inherent risks — something Florida real estate investor Jennifer Crowley has experienced firsthand. She’s made a good living in real estate over the past few years after quitting her job in the medical services field, but she’s now caught with a property she’s finding hard to sell.

“I’ve gotten no bites on it in this market. None,” she said, noting that the property is in good condition but that the pool of prospective buyers is severely limited because of tighter lending standards adopted by lenders.

Crowley quickly admits that “not every deal has worked out” for her, but she still believes real estate represents a great investing opportunity.

“It’s hunting. It’s taking chances,” she said. “Real estate may die and go away for awhile, but it always comes back.”

Crowley posited that the Florida real estate market represents a ripe market for “anyone who has cash and half a brain,” although she cautioned that it still doesn’t make sense to get into the buy-and-flip business just yet.

“Just buy them, rent them out,” she said, adding that deep discounts on desirable properties are available to buyers willing to buy and hold. She said she recently purchased a foreclosed property on the Gulf of Mexico via an online auction on RealtyTrac for what she estimates to be about half of its full market value. She plans to hold on to the property as a vacation home for now and consider selling when the time is right.

“The market will hit again. And anyone who comes down here and sees these Gulf-front homes will want to have them,” she said.

Miami real estate agent Bill Gardner, who works with many investor clients, agreed that “it’s very hard to flip right now.”

“The property will have to be purchased way under market to do so,” he said. “It would then need to still be priced under market with some possible added values. I advise my clients to buy/hold for a few years before attempting to resell.”

Finding the right inventory
In a slow market it is crucial for investors planning to flip to know which buyers are still buying and the inventory that they are buying, according to Southern California real estate investor and trainer Bruce Norris.

“It’s not so much about the giant discount, it’s picking the right inventory that more people want to buy,” he said to a dozen investing students attending a recent real estate investing boot camp given by his investor education company, The Norris Group. “We just have to put the odds in our favor.”

Reno, Nev., real estate agent Pam Dulgar sees the basic first-time buyer properties with three beds and two baths as the best sellers in her market. That’s largely because first-time buyers are not saddled with a house that they have to sell before they buy.

“Primarily middle class people who don’t have a house to sell, they’re looking at properties, looking to deal because they feel like they can get a good deal now,” she said.

To help move properties that she lists Dulgar puts together a financial package showing prospective buyers upfront what the down payment and monthly payments will be.

“I sell payments,” she said. “Can they afford the payment? And do they have the down payment?”

Even then, she conceded, attracting prospective buyers can still be a challenge.

“You have to find the buyers. And they’re not out there right now so you have to go find them,” she said, noting that because price is important to buyers she makes price prominent when she advertises listings. “I think keying in on the price factor is going to help move properties faster.”

Dulgar does not recommend flipping even in a market like Reno, which is faring better than many others because of a strong economy and continued migration of prospective buyers.

“I don’t encourage flipping right now. You buy a house, you spend a lot of money to fix it up and then you’re back in the market trying to sell with everyone else,” she said. “If you’re buying property now as an investment … you have to go in prepared that it may not sell. Can you afford to be a landlord?”

Prudent flipping
Despite the advice of agents like Dulgar and Gardner, investors like Liepzig and Norris continue to buy and flip — albeit much more cautiously. Norris invests primarily in the Inland Empire of Southern California, where the slumping real estate market has hit full force after experiencing several years of red-hot growth in the first half of the decade. He told students attending his boot camp that prudent flipping is the only way that investors can successfully participate in the local real estate market.

“You have two choices: you cannot play at all or you can buy really nice inventory that will sell quickly,” he said to the students, who sat two-at-a-table in a former bank vault-turned classroom, the heavy steel door securely propped open.

Norris made it clear that he’s chosen the latter. Not surprising given that real estate investing has been all he’s known for the past 25 years. But he admitted that although he knew the market was in for a sharp correction — he wrote a book titled “The California Crash” in 2006, when most were still predicting a soft landing — he did not anticipate the speed at which market conditions would disintegrate.

Norris demonstrated how one investor — whom he described as “very smart” — was stuck with a property in Moreno Valley. The investor purchased the three-bedroom home for $250,000 in 2006 and is now chasing the market downward trying to sell the home. It was listed for $169,000 in January after sitting on the market four months and undergoing six price reductions — starting at $320,000.

“Nobody in this business could have anticipated that a $320,000 property could be listed for $169,000 and not sell. He never got ahead of the market to be the next yes answer,” Norris said, adding that it’s critical for investors to carefully estimate a realistic sale price for any property they plan to buy. He recommends buying at the REO auction, a more recent phenomenon in which banks sell their foreclosed properties en masse to the highest bidder.

“It’s at the auction that lenders are capitulating,” he said, emphasizing that investors still need to do their homework by looking at the competition before they submit a bid. That competition is any other properties that are for sale in the neighborhood — including foreclosures for sale, which can drive down prices further.

Norris said he wants to choose properties that allow him to beat the competition on every count — listing price, location, condition and amenities.

“If you were shopping, you’d buy our house,” he said. “That’s what we need to be in this market because there’s only one that’s going to sell.”

Leipzig echoed the importance of buying right in order to sell effectively, adding that investors should find a well-performing area and then stay focused on that area. On properties he purchases — which are in the $300,000 to $700,000 range — he does not buy unless he believes he can sell for at least $100,000 more than his purchase price, including realtor fees and repair costs.

As soon as he purchases a property, Leipzig promptly goes to work to get the property sold as quickly as possible.

“I visit the other houses on the market in the area I just bought a house.  I want to see what my competition has or does not have compared to the property I just bought,” he said. “I make sure the property inside and out is totally 100 percent perfect with no flaws whatsoever. … It must be perceived to be the best property in the area.  Then I put the price below market value and current appraisal.”

Greg Norris, son of Bruce Norris and responsible for rehabbing properties purchased by The Norris Group, said getting properties into good enough condition to beat out the competition translates into higher repair costs.

“Customers were willing to overlook a lot of flaws (in the previous market),” he said, looking up from the maps and spreadsheets strewn across his desk. “You don’t want to go light on repairs now. We’re even starting to stage some.”

Beating out the competition also means that investors may be willing to pay a higher commission to agents or provide other concessions to help the property stand out to potential buyers.

“I talk with my mortgage person and have him do a 3-2-1 buy down or a 2-1 buy down on the mortgage points, so my house will stand out from any other,” Liepzig said. “Remember, in this market, pigs get fat, and hogs get slaughtered.  You do not want to be a hog.”

For those willing to take on the added risk of the buy-sell investing model in the current market, “price it very aggressively and don't get greedy,” according to Liepzig. And there is also hope in the not-so-distant future for investors who want to wait for more stable market condition in which to invest.

“I think prices will be down so much that they’ll cashflow by the end of this year,” Norris said, “So then you won’t have to sell it, you’ll just be able to load up on a lot of nice properties.”

By Daren Blomquist

Sunday, November 16, 2008

How Much Is My House Worth?

Have you ever wondered "how much my house is worth?" If you don't need to sell it and just want to know how much your house is worth, then it s worth whatever you say its worth. If for example an interested buyer comes up to you and says he wants to buy your house and asks you for what specific amount you are willing to sell. Then any answer could be right. You could price it a million dollars for all he cares, it is up to the buyer if he is willing to pay or not.

But if you need to relocate or you need the money badly, then that is another story. You should probably sit down on it and ask yourself and the experts "how much my house is worth". The buyers would not care for the sentimental and emotional value of your house. They would not care if your baby took his first steps in your family room, they would not care if you baked your first cookies in the kitchen; they want to know the market value of your house and that is what they are willing to pay.

Use comparable homes when estimating the value of your home, you can survey for houses in your neighborhood that had been sold in the last 6 months and compare the prices. Find houses that are closely similar to your house in terms of size and the description of the property. Compare what your house has or does not have against the other houses. From there you can increase or decrease the price depending on added features you have or features you don't have. From there, you can have an estimated price for how much your house is worth. Negotiations of the price could come after you have settled on a fix price for your property. However appraisals, using comparable estimation, are not really an exact science.

Sometimes it is best to seek the help of a professional appraiser to ask how much your house is worth. This can be helpful if a prospective buyer doubts your estimation and can alienate doubt of the real market value. When consulting an appraiser, tell them about the renovations you made and the added fixtures you've added to make the price more suitable for you.

"How much is my house worth?" This is a question better asked to real estate agents who have sold homes within your area. Market analysis is usually free and they would work on commission only if they sold the house. Not only will you get your money's worth, it will also save you a lot of time and effort.

Robert Grazian is an accomplished niche website developer and author. To learn more about real estate visit Real Estate Info Today for current articles and discussions.