Cashing in on Foreclosures
November 1, 2006
Buying up foreclosures at fire-sale prices has forever been a preferred technique of real estate investors for finding the best deals. For several years that market was less lucrative than it had been in the past. Now the dollar is turning. With increasing foreclosures in various parts of the country, buying foreclosures can once again result in positive cash flow.
First American Title just published a report entitled, “A Ripple, Not a Tidal Wave,” which discusses the increasing number of foreclosures around the country and what it means to future pricing of properties in default. The report, by Christopher L. Cagan, PhD, details the real estate market as it stands now in comparison with the market of 2005. You can download this report yourself from http://www.firstamres.com/pdf/ Foreclosure_Study_2006.pdf.
Dr. Cagan analyzes the number, percentage and prices of foreclosures as they relate to the real estate market as a whole. In it he looks at the “Foreclosure Prevalence” and the “Foreclosure Discount” as indicators of the health of the real estate market and as indicators of what we can expect in the future.
He points out that while some areas of the country are in deep trouble now, foreclosures are a “lagging indicator.”
People interested in picking up bargains by purchasing foreclosed properties may wish to wait for market prices to moderate or decline, for foreclosure prevalence to increase, and for foreclosure discounts to deepen. Many of the best bargains may be picked up after the actual foreclosure occurs when the lender is willing to offer a discount to avoid continued holding costs. (p. 17)
Single-family homes are three times as likely to be foreclosed on as condominiums, for whatever reason; and the lower quarter of the market is four times more likely to suffer foreclosure than the top quarter and is likely to be discounted almost twice as much percentagewise as is the top quarter.
Where then, are the places in this country with the highest foreclosure sales as compared to market sales? Dr. Cogan selected 34 counties around the country and compared market and foreclosure sales, and the foreclosure discounts. Notice in the chart particularly St. Louis, MO with a 14.6 percent foreclosure sales and a 46.6 percent foreclosure discount. Also notice Cuyahoga and Hamilton Counties in Ohio, and Fulton County, Georgia.
Also of interest are Brevard County, Florida, where foreclosures actually sell for more than the rest of the real estate market. Other counties in Florida show almost no discount.
What this means to us as real estate investors is that there are bargains out there again and there will be more in the future as we catch up with the market lag.
About the Author: Bob Cain
Some 30 years ago Bob Cain went to a no-money-down seminar and got the notion that owning rental property would be just the best idea there is for making money. He bought some. Trouble was, what he learned at the seminar didn’t tell him how to make money on his rental property. He went looking for help in the form of a magazine or newsletter about the business. He couldn't find any.
Always ready to jump at a great idea, he decided he could put his speaking and writing skills to work and perform a valuable service for other investors who needed more information about property management. So Bob ferreted out the secrets, tricks and techniques of property management wherever he found them; then he passed them along to other landlords.
For over 25 years now, Bob has been publishing information, giving speeches, putting on seminars and workshops, and consulting for landlords on how to buy, rent and manage property more effectively.
