In the real estate business, one word has become inescapable in recent years: foreclosure.
Since September 2008, lenders have repossessed homes from one end of the country to the other in record high numbers:
*In that time, there have been 3.3 million completed foreclosures.
*Just last year, nearly a quarter of all homes sold were in some stage of foreclosure or owned by lenders.
*The number of homes at any point in the foreclosure process is 10 times the historical average.
The wave of foreclosures has had a far-reaching impact on the economy, from depressing home values to lowering lenders’ bottom lines. Millions of people have had to leave their homes, and the consequences will affect the market for years, from displaced homeowners to depressed home values.
The misery of market turmoil is undeniable, but it also presents opportunities for real estate investors to make a difference in communities in two ways:
1. There are a large number of houses available at below market prices, ready to improve and resell.
2. Foreclosure-driven market conditions have made housing more affordable for buyers than at any time in the last 40 years. There is a ready-made market.
More than four in five Americans say buying a home is the best long-term investment one can make, so belief in the value of homeownership remains as strong as ever.
So what can the real estate investor do?
Find, fix and flip
The real estate investment system that we teach is based on three steps:
*Find properties, buying them at a discount.
*Fix them, using a cost schedule and a strict treatment plan with contractors.
*Flip them, selling at a profit that is still below market value.
This report will focus on the top sources for finding discount properties in the form of foreclosures. There are three main ways to find foreclosures today: real estate agents, lenders, and websites.
Real Estate Agents
Real estate agents can help find foreclosures to change, but finding good ones can sometimes be difficult. Typically, investors will have to make a lot of calls and attend a lot of meetings. It’s hard work finding capable and aggressive agents who can be trained to work within the system and supply the types of properties that fit that system.
It’s a good idea to focus on finding real estate agents who specialize in REO (short for “real estate owned” by a lender) and know the ins and outs of the process. This is the best place to start, especially for new real estate investors or those who don’t have a fully established system.
Finding REO specialists can be as simple as asking for a referral from a friend, neighbor, or relative who recently bought or sold a home. Other real estate investors can also be a good source of referrals. Buyers should ask the agent if he or she has been involved with REO properties and how many the agent has done. Obviously, the more, the better.
Even agents who don’t specialize in REO can be a valuable resource. Many referral fees are paid, so there is an incentive for the referring agent to refer buyers to someone who can get the deal done.
Another way to search: Go to an open house. It is often a more relaxed way to meet not only the listing agent for the property, but other agents as well. All you need is a good reference to get started.
Many agents have blogs where they talk about their experiences. One of the biggest is ActiveRain, a community blogging site for real estate agents. Users can search the site for “REO” or “foreclosure” and find agents.
Lenders will also have agents that they use regularly. However, it is important that investors have a buying agent, one who works for them and not the sellers.
Agents have access to the MLS (multiple listing service), a directory of properties for sale that typically includes more detail than any other source. An agent who knows that an investor is actively seeking foreclosures will watch the MLS for new listings and keep the client up to date. Some real estate agents also have contacts with lenders, through whom they find out about properties before they are put on the market.
Lenders
Banks and other lenders don’t want to get involved in the business of managing thousands of properties, many of which are vacant and in need of maintenance. As a result, they are making active efforts to get the word out about the homes they have for sale.
The five largest home loan banks in the country (Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, and Ally Financial) all have REO websites, with various functions. All have contact information for the agent selling the home, and most include both the phone number and email address.
On Bank of America’s foreclosure site, users can search for properties by city or metropolitan area. Featured listings include photos, property descriptions, and a map.
Most Wells Fargo listings include photos and details about the properties. Listings include a contact form to get more information about the house or discuss financing options with the bank. Wells Fargo also links to the property’s site on Zillow, a leading online real estate listing service.
The JPMorgan Chase database has quick and advanced search options, as well as a registration system that will save search criteria and can be configured to send emails to users when properties matching the search are added to the system. Some listings have photos and information and all have a locator map.
Citigroup’s site is the least user-friendly, as the only search option on the REO home page is to search by state. Listings within each state are arranged alphabetically by city name, and details about properties are limited to the basics.
Ally Financial’s (formerly GMAC) database is searchable by city, state and/or ZIP code, but information on properties is minimal and few listings have photos.
Many smaller lenders will also have REO listings online on their own websites or on aggregators like ForeclosureReops.com and BankForeclosureListings.org, which list bank properties from coast to coast.
websites
Dozens of companies have gotten into the business of collecting and publishing information on foreclosures across the country. Some offer information for free, while others charge fees for daily, weekly, or monthly use.
One of the best-known sites is RealtyTrac, which produces detailed reports on the foreclosure market across the country and claims 3 million REO listings, previous foreclosures, auctions, and short sales. It has a database of 70 million houses for comparison purposes.
Free searches up to the ZIP code level and narrow down by price range and home size. Registered users can view details about properties, as well as information like the difference in price between REO properties and regular sales within some zip codes. The site offers a seven-day free trial, as well as short-term and long-term subscriptions starting at $49.95 per month.
Foreclosure.com claims to have a database of 1.8 million properties, including prior foreclosures, foreclosures, short sales, tax lien sales, bankruptcies, and auctions. Its listing is searchable by county via a clickable map, and it offers a system to send users email alerts about properties matching saved searches. It has a seven-day free trial and costs $9.95 per week after the trial period.
A free site called FinestExpert has what it calls a database of “investment grade” properties. Their searchable listings include a wide range of property information, including nearby comparables and details about the home and its neighborhood.
Each listing also offers a comparison of the sale price and the estimated value of the property, calculating the potential discount. The listings are collected over the Internet.
Econohomes lists and sells foreclosed properties from a national inventory. The database is searchable by state, county, ZIP code, or address, and narrowed by price, size, and property type. Searches and registration are free, and registered users can sign up to receive advance notice of new listings.
Econohomes also offers short-term financing for investors looking to rehab and resell properties.
A site called All-Foreclosure.com links to dozens of paid and free sites, including banks and other lenders, government agencies, and real estate agents. It also provides information on the foreclosure process.
Government and government-sponsored agencies have directories of the properties they own.
HUD homes are properties owned by the Department of Housing and Urban Development as a result of foreclosure on FHA-insured mortgages. Most are priced at significant discounts from market value. Each home listing includes photos, maps, and contact information for the listing agent.
Fannie Mae has developed a system called HomePath for marketing homes, with lots of details and links. She also has a way to save and track listings, as well as investor information. Buyers should use real estate professionals to make offers on HomePath properties.
Freddie Mac properties are listed on the agency’s HomeSteps page, with minimal information about location, price, size, and listing agent. The US Department of Agriculture primarily lists rural REO properties on its real estate page.