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Foreclosure: Great Deal or Bad Investment?

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Let’s talk about things that could help you, customers, in the idea of chasing a foreclosed property…  

Myth #1: The notion that a bank (or any other lender) must sell a foreclosed home for the same amount it cost in order to gain possession of the home and, therefore, cannot make a profit is totally false. If the foreclosing lender is the successful bidder on the foreclosure home at auction, it will take possession of the foreclosure home. When this happens, all the rules change. The lender, now the legal owner, can do anything it wants with the home, including sell the foreclosure home for any amount it desires.

Myth #2: When purchasing foreclosure homes, home-buyers are often concerned about the quality issued by the mortgage lender. A common belief is that there may be liens or judgments clouding the title of the foreclosure home. False!! The mortgage lender, typically the senior lien holder, wipes out all junior lien holders or judgments against the foreclosure home in the process.

Tip: If the mortgage lender doesn’t bid for the foreclosure home at auction, you probably shouldn’t bid on the home either. This may be due to excessive superior liens, such as IRS or tax liens. Lenders—banks in particular- are driven to make money, not to lose it.

3 disadvantages to buying a bank foreclosure: A lender that moves at a slow pace; A lender selling the property “as is” with no cooperation in making repairs to the home or allowances; And the rare but possible problem of evicting a tenant or homeowner from the foreclosure home.

Bottom Line: Your goal as a real estate investor is to realize a tidy profit. You can buy a foreclosure home at a 15-20% discount and earn a 35-40% return. As a home-buyer, you should buy a foreclosure home below market value with a low down payment, low interest rate and reduced closing costs.
Real estate investors must deduct all expenses associated with buying, repairing, borrowing, holding and closing on the foreclosure home again from the price they think they can get.  Home-buyers should negotiate around the four discount factors: price, down payment, interest rate and closing costs. The bank, being a lender, can negotiate all these items.

An REO investor should have no problems achieving a 10-20% discount from the market value of comparable homes. Savings of 25-35% are harder to find. Savings of 40-60% are possible, but are getting rarer!!

Update on the Market: The fallout from a fragile economy may send REOs (bank-owned properties) and short sales back on the rise in the coming months.”With stocks plummeting last week and the global economic impact on our domestic economy and housing markets still unknown, distressed sales continue to be a critical market indicator,” according to Clear Capital’s latest report. Nationally, distressed saturation (the percentage of REOs and short sales to all sales) rose by 0.7 percent in August on a quarterly basis, increasing from 15.4 percent to 16.1 percent. The distressed saturation is near pre-2008 rates, and a rise into winter could send distressed rates much higher, according to Clear Capital.

Jerome Subtil
Signature International

Our mailing address is:

Jerome Subtil Real Estate

7431 W. Atlantic Avenue, Suite 49

Delray Beach, FL 33446

Katapult MarketingForeclosure: Great Deal or Bad Investment?

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