When you hear that buyers are purchasing bank-owned properties because they can rent them for more than the mortgage, it’s time to shake off the idea of a “bad market” and start looking for the excellent opportunities this market offers.
Skeptical? Hear me out. A two-bedroom home in foreclosure near a state university recently sold for an amount that allows the buyers to break even by renting it out. And in Sacramento, a four-bedroom home sold for less than $100,000. The buyers are renting it out for $750 a month, which essentially covers the mortgage.
You’ve heard me say it before — now is the time to buy. But do it with your eyes wide open by understanding the difference between, and the complexities of, short sales and foreclosed properties (often called REO based on bank terminology of “real-estate-owned” properties).
In a short sale, sellers who owe more on their mortgage than their home is now worth put their home on the market. If they receive an offer, they ask the bank to accept the less-than-mortgage-amount price and release them from the obligation to pay the difference.
You can find short sales today, but to complete the purchase, you’ll need an experienced agent to guide you through the complex and delay-plagued process. It may take weeks or months for the bank to respond to your offer, and even then the final answer may be a no. So start looking, but steel yourself for banks to be sticklers and even deal-breakers.
The benefit of investing in REO properties is that you know you’ll receive a timely response from the bank because no lender wants to own a large portfolio of REO. On a recent sale, the bank accepted my client’s offer within two hours. On another property in Santa Clara, the lender responded to my client’s offer within two weeks.
Banks are pushing hard to get rid of their foreclosed properties. They’re not giving them away, but they often list them at below market price. For example, I recently helped a buyer acquire a foreclosed property that sold for $780,000 in 2005. My client purchased it for $655,000.
Investing today is simply smart. But it takes patience and a good agent to help you find—and close—those great deals.
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October 14th, 2008 at 9:24 am
True! For those financially sound, its a great time to buy a house for yourself or for investment!