DEAN GRAZIOSI: DEAN GRAZIOSI REVIEW – REAL ESTATE FEED BY DEAN GRAZIOSI

The most distressed real estate markets in the country are located in Nevada, Florida and California.  Sunbelt cities, Las Vegas, Cape Coral- Fort Myers and Stockton, California, are posting the largest number of foreclosures. 

Real estate investors from around the country are retaining real estate agents in these areas to keep them abreast of local activity.  One seasoned agent in Cape Coral-Fort Myers reports attending 8 foreclosure auctions a month.  In Lee County, Florida, 2009 foreclosures are expected to top 40,000. 

The real estate agent reports that today his typical sale is under $200,000.  During the market’s peak in 2006-2007, the same agent said that his average sale price was $600,000.  Initially, the majority of foreclosures were from subprime loans.  As unemployment has jumped in the Sunbelt, foreclosure activity is affecting all levels of housing and prime real estate loans as well as subprime loans.

Investors in these markets will find very active markets.  2009 has been a record year for closed transactions.  In August, 2009, foreclosures accounted for 37% of all closed real estate transactions.  Foreclosures in the Sunbelt account for close to 50% of all real estate activity.

Investors expecting a quick turnaround are likely to be disappointed.  However, for investors who can find tenants or who are willing to wait for employment to gear up, the medium to long-term returns should be outstanding.  Residential housing in these areas is down as much as 50% from June 2007 highs.

Investors from other areas have learned to perform extensive due diligence before considering short sales or foreclosure purchases.  Many of the Sunbelt properties have preemptive liens from homeowner’s association dues and various tax liens.  Real estate agents in these areas can arrange for structural inspections in advance of foreclosure auctions as well suggest an attorney to search the title.

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Foreclosure gauges are beginning to sound a lot like those ominous unemployment statistics.  They are exhausting.  They are emotional.  In an era where 514,000 new applications for unemployment benefits is considered good news, the fact that 343,838 homes entered the foreclosure market in September 2009, is somehow seen as an improvement in the rate of decline.

Believe it or not, it is!  But like all numbers reported in this recession, it deserves a closer look.  While the September foreclosure activity is less than August, which was less than July, it is still the third highest number of monthly foreclosures on record with RealtyTrac. 

“Bank repossessions, or REOs, jumped 21 percent from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters,” said James Saccacio of RealtyTrac.

For today’s qualified real estate investors, the game is on.  Dispelling the adage that real estate investors cannot make money in a down market, buyers with cash can go a long way as banks get creative when looking to get out for under REOs.  Florida investors are buying large blocks of homes from banks and at public auctions.

These investors are banking on their ability to lease properties to “snowbirds” and other displaced homeowners until the market turns.  Residential real estate prices are down as much as 50-60 percent in some Florida markets and the weather has not changed, so rental appeal remains strong.  While seasonal visitors are pulling back from purchases, they are still looking to rent.

“REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some sort of the pent-up foreclosure inventory caused by legislative delays, loan modifications efforts and high volumes of distressed properties,” added Saccacio.

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Buying that Real Estate Owned (REO) property represents a real investment opportunity for profit.  Sounds easy, doesn’t it?  The lender does not really want to hold the property.  The previous owner has gone a separate route and there is a very real possibility that this property can be purchased well under market value.  Like all marketplaces, the REO marketplace is competitive so develop your strategy and stick to it.

The experienced investor can win in this market, but it takes preparation, discipline, a solid investment plan and a coordinated team effort.  Once the bank owns the piece of property, their goal is to turn it over.  Usually banks retain the services of a familiar real estate agency to manage the property and handle the sale.

The investor should ask the agent to research the performance of the REO real estate firm.  Often these companies price properties according to a specific formula.  The investor can learn much about the asking and selling price by knowing the asking and selling prices of other REO’s handled by the listing agency.

The selling agent should contribute to the information gathering process by constructing the property’s history.  Research the Trustee’s Deed or Sheriff’s Deed to find the Bank’s purchase price.  This information may also be on the tax rolls or listed with the title company.  Compare that purchase price with the listing price.

Analyze the loan amounts that secured the property. Somewhere between the original mortgage amount and the foreclosure sale price is the amount the bank is willing to accept.

These figures may have no correlation to the market value.  The investor needs to know the fair market value.  In many REO purchase situations, there may be multiple offers.  The investor must use the fair market value to determine the profit potential.

As we have discussed before, the investor takes an unemotional view of the REO.  This is about profit.  Use the historical data to build an understanding of the bank’s position and use the fair market value analysis prepared by the real estate agent to set your purchase limit.  Present a well-qualified offer and be comfortable with the offering price.  Peace of mind has value too.          

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