a couple of questions on Foreclosures

[chris246810]

hello i was doing some reading and join a foreclosure site for a test just to see what i can find. i just got a couple of questions. i seen some foreclosures from a bank repo selling for around 225,000 so i did a search on how much the property would actually cost so i did a zestiment search on the address and it showed the property and other propertys around it selling or sold for 400,000 can that be true? how accurate is that? my other question is with the realeste market being the way it is now is it good to buy foreclosures being that there are so many of them? i seen some even around where i live. how long would a property be on the market for usally? like after i flip it. i am getting some books over the weekend to read up on this subject and also short sales. my other last question is that are there hard money lenders out there that would invest 100% of their money? i talked to one lender and they said i would need to put 20%down. i didn't really talk terms i was just watned to get an idea. any help would be greatfull.
thank you

[TomAnto]

Foreclosure sales are generally offered below market for a number of reasons.

First, they are distressed properties. This means that the property owner has defaulted on the loan and could not or would not sell on their own. Sometimes the property is in disrepair, hasn't had property taxes paid or a number of other issues. This distressed state makes for a lower price.

Second, foreclosures sales are often judicial sales. The primary lender has moved to foreclose on the debtor because of a default on the loan. This action cuts off all junior loans on the home and is intended to fetch enough proceeds to settle the debt. A junior creditor could also attempt to purchase it if there is enough equity that they could resell and recover their losses as well.

Third, the market is depressed. The bank realizes that foreclosures are on the rise and people are scared of buying. The bank doesn't want to be in the business of collecting and holding properties they want to be in the business of money.

As for the 100% loan, not likely. We are in a major credit crunch and loans will become more difficult to find not to mention high risk loans. The lenders are going to want the debtor to be at risk so they don't walk away from the property.

Now is not a good time to flip. A year or two from now will be a different story.

I just finished a month of research on banks and the credit trend. I'll be posting a series of articles that I authored and a colleague of mine co-authored on my blog this week. You can read it if you follow the link in my sig. I'm not selling anything, it is just part of my studies.

[brianlaughlin]

Hi Chris,

You pose some great questions. Yes, depending on your market those numbers could be correct. Of course, you need to be careful that you are looking at all the data. Sometimes people get stuck with seeing a number like $150,000 for a home that is worth $500,000 not realizing that it's a second trust deed or mortgage that is being foreclosed upon.

Also, depending on your area if it's a judicial or non-judicial foreclosure can make a huge difference. In my 2 areas Hawaii and California, both tend to have the majority of foreclosures done non-judicially. What that means to the bidder is that it is usually 100% cash and sight unseen.

We're finding that in today's market the better deals are actually bank REOs. Considering looking into REO, too.

Flipping in this market is very risky. A recent study was done on people that tried to flip property in California last year. Of the ones that successfully flipped (this eliminated those that ended up renting it or lost it) 74% of them lost money. On average for single family homes, they lost $105,000. Yikes! 14% made money, but again the odds are stacked against flippers in this market If you're new to it - be careful. We're seeing better opportunities for cash flow properties. Look into your market place for that.

Short sales are also growing, you can check out this video to learn a little more about the process. I think educating yourself is a best practice that all investors should do.

You had also asked about hard money lenders. Yes, they exist. Most are scams and tied to some investment 'teaching/fill in the blank' course or school. But you can find legitimate ones out there. Usually all short term and you'll need to have permanent take out financing.

That is where you might run into some serious trouble if you don't have everything worked out before hand, otherwise you may be forced into a position you would not chose to be in.

Hope this helps.

Regards,

Brian Laughlin

i seen some foreclosures from a bank repo selling for around 225,000 so i did a search on how much the property would actually cost so i did a zestiment search on the address and it showed the property and other propertys around it selling or sold for 400,000 can that be true? how accurate is that?

my other question is with the realeste market being the way it is now is it good to buy foreclosures being that there are so many of them? i seen some even around where i live. how long would a property be on the market for usally? like after i flip it.

my other last question is that are there hard money lenders out there that would invest 100% of their money? i talked to one lender and they said i would need to put 20%down.

[Codythebest]

Since you have put a "z" in ront of estimate, I guess you are refering to zillow.com. These prices are extremely dependent of what the agent or public insert in there. Sometimes, properties are not updated on Zillow, or they forgot about it. So, be very careful with Zillow estimate.

It's always a good time to flip. It all depends how you do it. It's when you buy that you make money. In a tough market as we experience it today, a FMV of a property 2 years ago was, let's say 100. Today it's probably around 80. So, if you can sell it for 70, or 10 below today's FMV, your buyer will be happy. Now, how can YOU be happy? By buying it at 50 or 40. If you buy for more, you won't flip for profit.

Hard money lender, private ones, will be able to go 100% financing. The very opposite of a bank. However, you might get some 15%-18% interest on it. Which is high BUT OK since you'll pay the mortage for 6 months since you'll be flipping the property.
The more money you borrow, the better return and the higher the risk.
If you buy a property for 100 and spend 100 of your money and sell it for 120, you just made 20% return. If you buy it 100 and put 20 of your money with 80 as mortage and sell it 120, you just made 100% return on your money.