courtesy of Gary Eckdahl,
Realtor® specializing in
foreclosure and distressed properties.
PPerhaps you’ve heard that one of the best ways to get a “steal” or a “great deal” is on foreclosed properties. It’s no secret that there are great bargains to be had right now. A flood of these foreclosed properties have hit the market and the banks that repossessed them want to get them sold…….quickly.
Why are there so many foreclosed properties for sale right now?
The current economic situation has affected us all to one degree or another. No one is exempt from higher gas prices and its on most other goods and services. And, to some degree we will all get to experience the effects of the decisions our nation’s leaders make as they try to adjust to the situation at hand. Although some may only feel a little uncomfortable or uneasy, others have had it much tougher. All of us know someone who has been hit hard economically. Loss of jobs and homes, stress-related illnesses, vanishing retirement savings and bankruptcy are some of the more common things people all over this country are experiencing today.
As a real estate broker, I work with people regularly who have lost their home or are on the verge of losing their home. The most common scenario is a client who purchased their home between 2004 and 2008, somewhere near the top of the market, and now they are in a position where they owe more on the property than it is worth. They are what we call “upside down”. Have you ever hung upside down for a long period of time? All the blood rushes to your head and you feel like it’s going to explode. You can’t think straight and all you want to do is get turned upright again. Not a fun position to be in.
Outcomes to Upside Down Mortgages
If a person is upside down in their mortgage and, for whatever reason, cannot make their monthly payment, there will be one of two likely outcomes:
- They will either “short sale” the property, or
- The property will be foreclosed on by the lender.
A short sale occurs when the lender agrees to be shorted the difference between the sale price of the property and the amount owed on the property. Both outcomes have very serious consequences and I advise anyone who finds themselves in one of these situations to seek the counsel of an attorney AND a tax professional. For the purpose of this article I want to concentrate on properties that have already been through the foreclosure process and are now being listed for sale by the lender.
Terms You Need To Know
Before we go any further I want to define a few terms that are often used when discussing foreclosed properties:
- REO (Real Estate Owned): Property owned by a lender, typically a bank, government agency or government loan insurer, after an unsuccessful sale at a foreclosure auction. This term will be used when discussing properties that have been foreclosed and are now for sale by the lender.
- Distressed Property: A property that is under a foreclosure order or is advertised for sale by its mortgagee (the lender).
- Hard Money/Private Money: Financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued at much higher interest rates than conventional commercial or residential property loans and are almost always made by private investors in the local area. For the purposes of this article, the terms hard money and private money will be used synonymously.
- Flip: To purchase a property with the purpose of making some improvements and then selling it in a relatively short period of time for a profit.
For those of you interested in investing in Oregon real estate, now is a great time to think about purchasing an REO. There are properties in all areas, in all price ranges, and in various conditions. Some properties are brand new and move-in-ready, while others may have a structure on the lot of no value with the value being only in the land itself. I have worked with investors who have both flipped properties and purchased properties to hold as rentals. Whatever your investment goal, this is the time to act.
Many of the great values in Oregon are on properties in some degree of disrepair. Due to the poor condition of the property, many of them cannot be financed through traditional lending and need to be purchased with either cash or private money (hard money).
If you are new to real estate investing you will need to do your homework. There are many pitfalls along the way that can turn a dream of big profits into a nightmare. Always work with a Realtor® with experience in real estate investments. A knowledgeable Realtor® will guide you through the process and help keep risk to a minimum.
Maybe you are not an investor but rather a person looking for a home to live in and you want to take advantage of the low-priced REO’s out there. Maybe you have already been out and looked at some REO’s (or at least looked at them online), but all you see are properties that require a lot of work. Believe it or not, even if you don’t have the skills to do the work yourself, or the money to pay for it, you may still be able to purchase one of those REO’s.
If the home doesn’t need major repairs then you can usually get traditional financing and purchase the home just as you would a non-foreclosed property. However, if the home is in a condition that will not allow it to qualify for traditional financing, such as no heating system, dry rot in the siding or a leaky roof, you may be able to get financing through what is called an FHA 203K Loan. There are some qualifiers for this loan but basically it is a loan for someone who is planning to live in the house (this is not for investors) and it allows the borrower to borrow the amount of the purchase price plus the cost of the repairs (up to certain amount). Typically, a buyer can negotiate a much lower price so that the total price of purchase and repair will still allow for considerable equity in the property.
So whether you are an investor looking for that sound investment or a person looking for that next property you will call home, REO’s are something you should consider. Call your Realtor® and let them go to work for you. If you are not currently working with a Realtor, please give me a call and I will put my experience to work for you.