|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.