My Foreclosure Theory ? What do you think ?

Foreclosures are up all over the nation and I believe that people will own so much money on these homes/multi familys etc… that when they go up for auction, they won’t be a deal because they simply won’t be worth it because of the huge loans on them. The real deals in my opinion are going to be the homes/ multi familys that are around the foreclosures and there value will decrease a lot because of the huge amounts of foreclosures. What do you think ? all opinions are welcome …

That’s why I’m in this business.

So you plan on not buying foreclosures but the property “around” the foreclosures ? because there value will decrease ?

Basically the subject of this forum. Buy pre-foreclosure properites via short sale & make a profit via exit strategies that suit my situation or market.

What happens if you want to become a landlord ?

Let’s address multi-family properties and SFH’s separately because they are both unique to eachother.

Multi-family:
What causes a multi-family property to decrease in value is a lack of income and/or an increase in operating expenses. It’s tough to make it through an underwriter with a property that is not producing a positive cashflow even while considering the new debt service. I don’t believe you will see an increase in foreclosures in multi-family properties because most rental markets are doing okay (foreclosed SFH owners need a place to live.) It would also not be wise to purchase properties “around” a foreclosed property for the reason of declining value. This would mean the income is dropping and/or the expenses are rising AKA, no cash flow.

Single Family Houses:
What is making SFH’s go into foreclosure is all of those weird option ARM, teaser rate mortgages that lenders were so willing to offer in a hot market. Also they were more willing to loan at higher LTV’s assuming the borrower would soon have a large equity spread as the value quickly increased. The property values have nothing to do with foreclosures. As long as you can afford a $5,000 mortgage payment, who cares if the property is only worth $45,000. What happens is the borrowers payment jumps through the roof and they are now in a house they truly can’t afford, should of never bought, and have no equity to sell on. The only major things effecting SFH value is supply and demand. Ofcourse there are many things that influence supply and demand. This effects the value to a rehabber.

To a rental investor, the only thing that matters is cash flow, the value should be calculated the same as multi-family properties. If the value to you as an investor is decreasing, so is the profit. Stay away from properties losing value unless you have a big checking account you don’t mind depleting or are smarter than every other investor in your market.

Hi Danny,

Lets say I’m interested in multi family properties, how does a multi family property investor typically acquire these types of properties ? mls ? since they normally don’t go into foreclosure often ? Whats your strat. now ?

Thanks !

Take the proactive approach, look for multi-familys in disrepair, or perhaps the landlord can’t upkeep it. Call the owners and ask if they’re willing to sell, perhaps a lot of them aren’t liking the landlord game and want out.

Hi RDR,

Rdr, do the same philosophies and strats come when it comes to investing in multi family properties ? are most the the people in this board “filppers” ?

There are hundreds of ways to find properties. The MLS is just one. Commercial RE has it’s own listings, so that may be a place to start. I have done a lot of residential rehabs (several hundred) and about a dozen commercial rehabs, some I still own as rentals, and the absolute best way I have found deals is by driving around or using bird dogs. I have had the intent to rehab every property that I have ever bought so that method may be rehab-specific. If you want the biggest returns on your average deals, you will be buying distressed properties/ rehabbing/ and selling or leasing.

You may find a few good deals from one of the many listings, a government agency, auctions (foreclosure, bankruptcy, estate, probate, etc.) but your best deals will be the forgotten buildings that the owner is totally absent and just pays taxes on it every year. The owner won’t have enough care to even call a broker to sell the property. As RDR said, landlords who are present, but suck at their job is another good way to find deals. Sometimes the landlords will intentionally mistreat tenants as a form of “payback” for whatever dumb thing the tenant did by letting the place turn into a dump. Other times they just get in over their head and need a way out before they have a heart attack.

The point is there are many ways to find deals. The best way is to get out there and physically locate the property. This is the most labor intensive which is why fewer people do it thus giving the harder workers the best deals. Searching through listings is something to do after business hours, when it’s dark outside. Daylight hours are for the boots to be on the ground.

Most people on this board have never made a single investment and are trying to absorb what they can. Next are the people who do a little of everything. After that is the rental owners. The smallest number of people are doing rehabs and flips, which is not advisable to most in this market.