One of the hottest trends in today's real estate market is foreclosures. Of course, investors, flippers, & late-nite infomercials have always made buying distressed properties a popular pastime. What's changed is the flood of these properties into the marketplace (see this Realty Trac article) and a commensurate ratcheting up of interest in them. My buyers ask about foreclosures, I answer questions on Trulia about foreclosures, and (warning: shameless self promotion ahead) we are rolling out a tour of foreclosure properties in Chicago. It appears that everyone is drilling for dollars in foreclosure properties.
Unfortunately for many of these Daniel Day-Lewis wannabes, they may be drilling a dry hole.
Oh, there's money in them there fields, but it may not be where most folk are lookin'. Consider the newest variety of Pre-Foreclosure, Short Sale, and Bank REO candidates on the market today: homes that were 95% to 100% financed within the last couple of years. With these homes, you are negotiating with the lender, either via short sale or after the bank has taken possession. In my marketplace (SW Chicagoland), lenders are typically not running a fire-sale on these homes. Sure, they want to move these non-performing assets, but in general they aren't letting them go for 60 or 70 cents on the dollar.
Where there is a lot of promise is at the intersection of motivated sellers and equity rich homes. As in any market, there are always sellers who are motivated to sell (relocation, divorce, estate sale, finances, etc.). In today's market, with often 8 to 12 month supply of homes, these sellers are feeling greater stress and more motivation to sell. Now pair this seller with an equity rich home, one where the seller has 25% plus equity in their home, and you might just feel the ground begin to rumble.
In general, these properties hold more promise because:
- Owners only have paper equity, so they are taking a paper loss as opposed to actual dollars out of their pocket.
- You are negotiating with a homeowner and not a loss mitigation department of a bank. The homeowner may be more emotional, but is usually less savvy at driving a hard bargain.
- These properties take more digging to find, so that means there's usually less competition for them.
Don't get me wrong, I know there are markets where the foreclosure fire-sale is in full burn. That may be just around the corner soon here in Chicagoland, too. I know that I am scanning the hotsheet and my courthouse bulletin service on a daily basis looking to drill for deals.
Just remember, though, that when the "tectonic plates" of the market shift, "there will be deals" often outside the obvious choices to drill for dollars.
Good luck wildcatting and if your looking to drill in the Chicagoland area, please feel free to give me a call or drop me an email.
Please feel free to visit my blog about Will & Grundy Counties, IL at The Will/Grundy Real Estate Report.
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