Ken Mascia, from Oxford Financial, is back again today, sharing his thoughts about the real bargains in real estate in Metro Detroit. As a veteran mortgage broker, Ken sees a lot of different transactions cross his desk every month. Ken says…
Check this out. Many of the buyers I am talking to are looking for a “foreclosure,†because they want to “get a really great deal.†Well, I can understand the logic behind this thinking. All of the recent talk about high foreclosure rates combined with a slow real estate market would lead you to believe that there are some great deals out there on foreclosed homes. What’s the scoop?
The bottom line is this – aggressive mortgage lending has really taken the wind out of the sails of foreclosure buyers. Nearly every home that goes into foreclosure is mortgaged to the hilt and may in fact have loans that total more than the value of the property. Let’s face it folks, nobody that has a lot of equity in their home gets foreclosed on anymore. If you have equity, then there’s a lender somewhere that will loan you more money to get you out of trouble.
So, when the bank gets a house back after a foreclosure it has already incurred thousands of dollars in legal fees and probably has to spend some money to make the house presentable for marketing. There is not a lot of wiggle room on the sales price. Yea, says this foreclosure buyer, but they have to get rid of that thing, so I can get a deal on it, right? Not necessarily, you have to remember that the owner of the home is a gigantic bank with about a billion dollars in home loans on the books and they build in a reserve amount for expected losses on foreclosures. The bank’s balance sheet is so huge that the foreclosures are like a fly on their shoulder that goes unnoticed. They are not generally willing to lose a significant amount of money on these things. So if the equity in the property is zero or negative, then you may get lucky and be able to buy the house for a 5 – 15% discount to current market. That’s probably about as good as it gets and that’s not a great deal!
There are really better opportunities that go overlooked. One of these is estate sales. When a person dies, the surviving heirs are generally very motivated to sell the house and put the estate to rest. I have seen some of my clients get unbelievable deals from estate sales of homes.
Another possibility is homes owned by relocation companies. Relo companies that have bought back homes owned by transferred employees are anxious to get those properties off of the books. I’ve seen some spectacular deals in those cases. Your Realtor should know how to find these homes for you.
Finally, a homeowner who has owned their home for a long time, bought it cheap, has a ton of equity and is motivated to sell is going to be way more flexible on price than a bank trying to get their loan money back on a foreclosure. Think about it – if you bought a house in 1985 for $125,000 and you only owe $75,000 on it now, and you sell it for $250,000 (even though you thought it was worth $300,000) you still doubled your money on this property. The buyer got it for $50,000 less than it will sell for when the market picks back up again. Look for sellers that have owned for a long time and have a lot of equity! If they are motivated you may get that great deal!
The bottom line is, in today’s world foreclosed homes don’t necessarily make for bargains. There are a number of other ways to find great deals out there if you put your thinking cap on, are patient, and know what to look for. Happy Hunting!
Ken Mascia can be reached at 248-644-1200 or OxfordFinancial.com
Finance and mortgage articles by Ken Mascia.
photo credit: dalismustaches/stephani
[tags]foreclosures, real estate bargains, motivated sellers, deals in real estate, michigan, ken mascia, oxford financial[/tags]
Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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{ 2 comments… read them below or add one }
Foreclosure Investing 01.17.07 at 9:35 pm
I’m glad to hear most people think it’s difficult to find deals in foreclosures because the mortgage(s) total more than the market value of the home. Less competition.
But the truth is you can create equity out of thin air through short sales – particularly with 2nd mortgages. The 2nd is wiped out if the house goes to foreclosure so they’re motivated to and often do accept 30% and less to pay off the balance of the 2nd mortgage. Depending on the situation that could create a huge amount of equity.
But you still have to find the deals, negotiate with the lender, and come up with the 30% to pay off the second. No picnic but it can be done.
DaveinRO 01.26.07 at 3:03 am
Furthermore, not al foreclosures are for failure to pay a mortgage. If taxes are owed, some homes at foreclosure will have a tax lien making it a probable bargain. Correct me i I’m wrong.
Seems like your advice is what I see as typical of a real estate agent trying to justify their existence.
Also, my advice, never trust an agent who is trying to convince you it is a ‘good time to buy’. I live in a california market where our agent tried again and again to get us to buy. She completely ignored all signs pointing to the impending downturn. Even today she insists we should have bought. Indeed we should have…if we wanted to loose 10%. Oh but remember the power of leverage. 10% of the value of a home would have been 50% of our equity. So she was advising us to make an investment that would have lost is 50% in a little over a year! Would you hire a stockbroker that did the same? Not on your life. And yes we truky would have lost that monley because we will be moving shortly (next 12 months) and would have had to sell at a loss (and she was aware of our short time frame).