This Saturday, the New York Times had an article about foreclosure auctions which explained that there are not as many bargains at these sales as one would think. Even with the record number of foreclosures happening across the country, homes in foreclosure only represent 2% of all mortgages.
Many people believe that with all of these homes going into foreclosure that it is easy to find bargains at the sheriff sale. I can tell you from experience, it is not. I have seen many inexperienced first-time buyers, or novice investors, attend sheriff sales and either pay too much for the property because they didn't do their research before hand to know what the property was actually worth, learn what repairs the place needed or they just got caught up in the excitement of bidding (what is an extra 1, 2, 5 10 thousand+? - I am still getting it at a steal!)
The pitfalls of buying at the sheriff sale is not reserved to people looking to buy a home for their family to live in. Novice investors lured by the prospect of making a large profit also fall victim at the sale. From the NYT article:
Many investors have a real estate or construction background. Others sign up for classes. After taking a seminar in buying foreclosures, Todd Vela, a salesman for a nutritional supplement wholesaler, bought two houses nearing foreclosure last fall not far from his home in Grand Rapids, Mich. He said he paid about $20,000 for a dilapidated four-bedroom house in a neighborhood where other properties are worth triple that. He said the house needs $25,000 in repairs, including a new roof and new kitchen, and he hopes a contractor will buy it as-is for about $40,000, though he would take less. On the second home — an 1,800-square-foot four-bedroom — he paid about $60,000 and made $5,000 in cosmetic improvements. He hopes to sell it for about $90,000. Even though Mr. Vela has not been able to sell either house, he remains upbeat about buying foreclosed properties and intends to resume shopping once he sells one of his investments.
“I’ve been good on picking up properties, but I haven’t been good on an exit strategy,” said Mr. Vela, who paid cash. “I’ve had to hold them longer than I originally liked. That’s O.K. That’s part of the game. It’s affected my holding times but not my profit.”
The current real estate market is unstable and extremely volatile. An increasing number of people that we work with are investors who got into the market at the top and are either at risk of losing their investment property in foreclosure, or are bleeding money each and every month.
If you are a homeowner or investor that wants to sell your home or investment property contact us today.
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The latest government bail out proposal reminds me a bit of Seinfeld. It is expected that the President will announce that the government has struck deals with some of the larger lending institutions where they will freeze the teaser rates *on some* of their subprime mortgage loans. Not everyone with an ARM that is about to rest will have their low introductory rate frozen for the next 5 years though.
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