Buying Foreclosed Properties.

JustaFramer

I have a few ideas. I found a site that give a listing for 50 dollars a month. I checked out they had for listings. The houses are foreclosed apon and set for auction. they don't give info when just browsing but offer information like liens, county auditor info and what owed on the mortgage.


I have some ideas spinning in my head because where I am looking is popping. Some of the house are the oldler houses that are about 800 sq ft on big lots sometimes double.

My idea is to bid on them with a price I want to spend probably 50-75% of the value.

I figure liens would have to be paid if there are any. What about the rest of the mortgage on the home?


The other part of my idea is adding 1400-1600 sq ft on the back of these single stories. I believe the code is no more than 60% of the lot can be covered by the house. These lots are fair size so this isn't a problem.
This would add considerable value as the medium home price is about 300,000 plus in this sq ft range.


My real question is the skinny on buying homes at auction? Is there hidden fees or other money that needs to be paid after the actually bid price if won?

MHMConstruction

I have a client that does that here, and I may start doing it soon.

I'm curious if there is a website like that here, in FL.

Anyway, my client's main problem has been with getting people out of the houses. Sometimes he'll buy a place sight/unseen and he gets there and lo and behold there's a family living there. They inherited the house, and just never paid the taxes. Ugh. No fun.

Does your website say whether or not the places are occupied? Here it takes like 30 to 90 days to get someone out.

Good luck

MHM

dirt diggler

go to some auctions ... you'll find that many of these sales end up being equal to - if not more - than regular market value


if you can make it work - go for it


just remember ... it is not a get rich quick thing

raypenn

Framer,

Here in MI the first auction a house goes into, the mortgage company usually wins. Most ppl don't bid on these and win because the min amount of the bid is the outstanding mortgage. And even if you do get a great house for a cheap price the owner still has a redemption period to refinance the home and buy it back from you. All you get is some interest for holding the note during that time. If they cant get the money together, then you really own the property. So really the first auction is a waste, we don't even bother with these.

We have been having alot of 2nd auctions here in Detroit. These are held after the property has been fully foreclosed on and a in the hands of the Banks or Mortgage comp. In all honesty we stay away from these as well. They are mostly properties that have been in the hands of a REO Broker for awhile and have not sold. Either due to the property being overpriced for the market or its condition is so bad nobody wants to touch it. After that time the banks will bundle a bunch of their properties together and thow them in a auction. Most of the ppl that go to these and buy there are first time flippers or homebuyers trying to get a good deal. And neither of these two types are conductive to those of us that are trying to make money in the business. They tend to bid the homes too high due to their inexperience.

We buy all of our properties thru a REO agent that specializes in foreclosed properties. He makes sure all the liens and occupants are gone from the properties. He does all the filtering of the properties we are looking for before even turning us on to them to look at. We have held his hand through all of this. Turning him into the agent we need from the typical agent he was. He can now walk into a house and know what price we need to buy that property at, because we have made him privy to our construction costs and our return on investment expectations. Now granted its costs a bit more to buy a prop thru him, but if we had to pay someone in house to do all this leg work it would cost alot more.

After we complete construction on a house our goal is to sell it to a home owner at market price. If we cant do that in a reasonable period we will sell it to another investor a deep discount. Due to the high holding costs and potential liability associated with a vacant property this is not such a bad deal. So what if we eat 15k over the short term. Every day that house sits on the market costs us money plus the very good chance it is going to be broke into and damaged. Unoccupied home insurance is so pricey that you never ever turn your loss in unless it is a total loss. You just try to smile, eat it and go on with your day.

Just to give you a idea of how we buy. Now every market is diff but Detroit is hurting so bad we can do this here. You might not be able to where you are. We just finished a house that we bought for 11,500, we put 32k into it. It appraised at 84k. The flip took 5 weeks from closing date till the day it was ready to be shown. Asking price is 75k. A nice discount there. But we want to turn it fast and take our cash flow onto another property. IF it dont sell within a month we will start marketing it to other investors that want to be in the rental business and sell it to them at a even higher discount. Better to make some money then none at all. Frees up our cash and keeps all the guys working. And maybe the next one will sell at market price. You gotta have big balls to be in this business and don't be greedy. Take your profit and go onto the next venture.

One of the most important things to remember in this business is. You don't make your money on the sale, you make it on the buy. Beat the banks up on the buy. They are the ones that screwed up with the loan in the first place.

Good luck

Ray

JustaFramer

I talked to my cousin that is a real estate agent. She told me pretty much what raypenn said.

The only but in my idea is there is not to many houses at 11,500 here. I image the starting bid is that but I can see it going to close to market value. I was also told that once the auction is won it must be paid by the next day in cashiers checks. I don't have 200gs. I guess my idea could work if I had liquid capital.

On the other hand she told me that the market is slowing down but not depreciating. I would do better bidding on a short sale like I did on my last house. The same turn of the century quaintness with a large lot in the area I am looking in.

All roads lead to rome.


MHM that site is nation wide. Its 50 dollars a month. Cuz says a search at the county auditors office for trustor auctions will give the same thing.
If you are still interested search for realty trac.

lawndart

I have a friend that flips 20-30 houses a year. He told me that foreclosures aren't worth it in most cases. He buys properties using the "three D system"

Death
Disease
Divorce

He makes out real well finding these types of people looking to get out of their properties fast.

tvvbsn

Most of those lists are so out of date, by the time you get the list the good deals have been made, and you are left with junk. You really need to get houses pre-foreclosure, or have a good realtor find you them after they hit the market.

For the past couple of years I have been buying "distressed" properties and fixing to rent, not flipping.

You don't find the deals, you make the deals. And like raypenn said, its made at the buy because the sale price is already set before you even touch the property.

Tim

Mike Finley

All real estate flippers I know who are actually doing what they say they are, (There is a ton of BS, exaggeration and out right lieing) do it by advertising directly to the homeowner in trouble, they rarely can make the numbers work once it goes to auction or becomes a REO.

The only scenario I have ever found that works for me is buying and hold long term as rentals. It's been my experience that this is the true wealth builder in real estate.

However, even with distressed properties I always have to put $15,000 - $30,000 of my cash into that property, usually as a combination of the rehab costs and the buy down to get the numbers correct for financing. The numbers won't work doing no money down for me. Those deals exist but those properties are the type that don't appreciate and that is the game you find 99% of the investors involved with, they are only concerned with cash flow and not appreciation. Unfortunately, that won't build wealth.

Grumpyplumber

I see it all the time, get calls for estimates on remodels/rehabs...give a price and they almost pass out.
People make a decision to get into R.E. developement with no concept of how, why, or where to buy...then lose their shirts on ill guided decisions.
Seems like there's a big rise in popularity for shows like "flip that house", "This old house" and other DIY type "informative" media forums.
Homorous note...as a kid I remember TV had become the cure-all for kids with time on their hands and the question of what that would do to them in the future came up...maybe this is it, TV and reality have no line...
At any rate...making money has no easy short-cuts, unless you're this weeks lottery winner.
I'm impressed by the fact that the replies here are so realistic and knowledgeable.

Mike Finley

I agree with ya Grumpy.

On another note did anyone catch the article in one of the trade mags, might have been JLC about how those of us in the construction biz hold a huge advantage above all others if we do investment real estate? It was a good article, outlining our basic strengths of holding all the most difficult cards which are knowing true rehab costs, already having the abilities, tools, key vendors, supplier and services relationships in place already.

Edit -

I found it, it was JLC. Jim Cameron November 2006 ( not recent, I must have picked up an old issue)

It's here, but you have to pay for it now.

http://www.jlconline.com/cgi-bin/jlc.../View/0611inve

mickeyco

Wrong area, oops

__________________
Some people climb mountains. I take out the trash. But we both do it for the same reason.

Dansbell

You can find notices without paying for lists. all auctions have a public notice. often it will be in your local news paper. Here are a few places I check regularly

http://www.hud.gov/homes/homesforsale.cfm

http://www2.fdic.gov/drrore/

http://www.mortgagecontent.net/reoSe...roperty+Search

http://www.propertyinvesting.com/forums

__________________
Daniel S. Bell
Belbuilt, LLC
Install Cabinets Medford, Oregon
http://www.belbuilt.com

K2

Most of this stuff you can learn by watching TV.

I use the locker room method.

When i walk in the locker room and everyone is talking about buying stocks... It's time to bail.

If I walk in the locker room and everyone is talking Fix and Flip...I'm looking under the next rock for opportunities.

But there could be some good deals in F&F, just sharpen your pencil.

I don't remember any hidden charges associated with buying/closing on forclosed properties but there would be many many costs that could nickle and dime you to death involved in a Fixer.

Nice thing about being young is you can screw up and recover.

Go getum.

K2

Another "equity/asset builder" to consider is moving up on your personal homestead.
If you're in a 7% appreciating market and you own a 100k home, that = 7k per year. Change that to a 400k home and it goes to 28k per year.

There are many advantages to investing in your own home and you need a place to live anyway.

I recommend doing all your interior remodeling before you move into a new home. You don't want to come home to and wake up to a jobsite everyday. The work gets done faster/better and it could save a marriage. I hate sawdust in my butter.

JustaFramer

I already sold my first house. After all was said and done I walked away with 20k in 15 months. Did nothing but live on the property. The house appreciated $45,000.

right now the cheapest property available is 230k. These are the cottages I am thinking about. the only other way to go is buying a developed lot for 150k and build what they have permitted.

But I suspect they are the "air condos" aka cluster build. Those seem to be selling for 300 plus.

I don't want to get into a spec build right now. My sources say the local market is going to slow in the next year. That is when I will get a loan and go and put in lo ball bids on houses.

evperry

The best source of data will be the local company that does the actual foreclosure research not a national company.

I have been flipping and building houses for 8 years and foreclosures are good source of inventory but the are absoulutely the worst source.

You have to check you local laws for evictions. On holdover tenants in Brooklyn, NY they get stay up to 9 months. Sometimes the judge wont make them pay. This becomes a major soft cost.

I like to buy land from the auctions and I hate to buy non-vacant homes.

tvvbsn

I tend to disagree with K2eoj as far as using your personal home as an investment. There is little to no tax benefit in using your personal home as an investment. I believe that purchasing a home in most cases is better than renting, but I don't think that too many personal houses are very good as investment properties.

With rental properties, you can get your customers that rent the properties to pay the mortgage and insurance. Then when it comes to tax time you can depreciate the dwelling over 27.5 years so that on paper you show a negative income. But in reality you are gaining equity from market appreciation and the fact that you are paying down on the mortgage. All repairs and maintenance can either be written off or depreciated also. None of this can be done on your personal residence. So rather than purchasing 1 400,000 dolllar home, you can purchase 2 rental properties and make a much better investment.

Of course the government has figured out that this loophole exists and have somewhat closed it by imposing recapture taxes on the properties, but that is why you hire a good accountant to help with the books to minimize your tax burden.

But the way I see it is anything that doesn't bring in income isn't an investment, but rather is a liability. There is no way for your personal home to bring in income since you are the one paying for it in the first place.

Tim

K2

The Capital Gains exclusion for personal homesteads is a huge benefit excluding up to 1/2 million for a couple in taxable gains. .. I think the homestead exclusion will go to 1 mil in a few years.

Capital improvements to your homestead are not a gain and as far as I know the IRS still accepts ballpark numbers for capital improvements. (i.e. you don't have to have 20 years of receipts). If you did a few repairs along with your improvements and lumped them all together under capital improvements I don't think you would get any static.

Selling off rentals after many years can be tricky. All those years of Tax breaks want to come back and bite you in the butt. I'm hoping for some changes in the capital gains tax in the next 5 years for some relief. Or there are some other ways but that would be another thread.

Mike Finley

About 70% of the wealth in America is in the equity of their personal residence. That's a pretty good investment or scary as hell depending upon how you look at it.

K2eoj is absolutely correct. While I've read what you posted tvvbsn before, I've never read what K2eoj posted about buying a more expensive personal residence. Until I had seen him post that, I thought I was the only one who thought that way.

No matter how you want to cut it, purchasing a personal residence is the frist step to building weath. Purchased smart it will be the stepping stone that you need to do everything else. There is reality and there is what you read in real estate books and the two very nearly never cross paths.

tvvbsn

I guess I wasn't clear about tax benefit. I understand the Capital Gains exclusion on your personal home. But I don't see how that helps reduce your yearly tax liability. Using your home as a investment property is a risky deal.

I think its extremely scary that most folks have more money in equity in their home than in a retirement account.

When I was talking about the repairs being written off. If you replace the siding on your personal residence, while it is a capital improvement and the only ones who care are the folks who get the money from your property taxes, how can you claim that as an expense and use it to offset your taxable income? If it's a rental property, it gets claimed as a business loss and at the end of the year it offsets income you would have to claim.

I don't know how many years you get a 7% appreciating market in the housing industry? Also when you figure in inflation into that it takes a chunk of that 7% right out of the equation. You would be better off putting that money into a mutual fund or IRA which has its own tax benefits.

Personally I feel that people are mislead to believe that a home is the best investment they can make. I think that buying is better than renting if you can afford it, but I still don't think the return on your money is very good if you use your homestead as an investment vehicle.

Also many people are decieved by thinking they have all this great equity in their home. When you sell, the real estate agent takes a huge chunk, closing costs, and all the other miscellaneous fees involved take a pretty serious chunk of money from that equity.

I think real estate is a great investment, and there isn't any way I would not own my own house, but I think that there is a better place to put my cash rather than into my personal house.