Auctions, Foreclosures, and REOs
Right now you can do very well in the real estate market if you buy homes the right way. One great way is by foreclosures and auctions.
Lots of homes in various conditions are available to buy. With a little TLC you can bring them back to life and resell at a very nice profit, or you can keep one for yourself and have instant equity. So, where do you find such homes? We can help you locate the right homes and show you how to improve them for the maximum return on your investment.
Sites such as HomePath.com by Fannie Mae and Northwest Trustee Services allow you to view some of the properties available in King County; this is public knowledge and costs nothing but the time you invest.
Our approach for investment is to look for distressed properties that offer the best upside, rehabilitate as reasonable, and offer for resale ASAP. By "reasonable" we mean that we bring the house up to the standard of the neighborhood. Of course, if you want to buy a house and live there instead of resell, you can improve it to suit your needs.
Traditionally, you will find two sources of such homes, foreclosures and auctions.
Foreclosures & REOs
You can find REOs (bank-owned properties) on all of the major banks' websites if you dig around a little. Banks are reluctant to publicize these sites because they're trying to avoid flooding the market with this inventory and eroding prices further. This is also known as the shadow inventory.
The problem with foreclosures is the length of time they take to close. The lead times can take several months, with no guarantee of a successful purchase. Often banks can have unrealistic expectations of the value of their properties.
Auctions
In King county, auctions are easily accessed on sites such as Williams & Williams Real Estate Auction. Every Friday morning, trustees offer foreclosure auctions. A huge industry has developed around these auctions. A number of companies offer to find you properties in which to invest. They will indeed give you such a list, but it will cost you dearly. These companies will charge a fee of $3,000 for their research that you can easily do yourself for free. They'll also offer to find you "hard money," or a lender that will finance the purchase. The hard money investor will charge a steep fee, usually 1% per month interest, and there is also a fee for putting the deal together, $5,000 and up. Then they'll put you in touch with a contractor to remodel your purchase. You may choose to renovate or not (not is a huge mistake), and these companies will offer to sell the property for you, again for a fee. They quote wonderful numbers and statistics implying raging successes. There are successes but there are also failures. What these companies don't tell you is that you are the only one that takes any risks with the investment. If the purchase goes sour, you are stuck with the house, with a huge loan that you can't repay, and that is after you already paid the finder's fee and the deal fee – at least $8,000 total – plus any remodeling fees. Does this make sense to you?
Finally, you have to be careful when buying titles this way. There may be tax liens, utility liens, etc. that will become your responsibility the moment you buy the house. In contrast, there are no such problems when you buy a foreclosure.
So, if you want to go this route, it might be viable if you are buying a home to live in yourself and you already have financing in place.
Fortunately, there is a better way.
Fannie Mae and Freddie Mac auctions are really good ways to buy foreclosures and auctions.
Fannie Mae and Freddie Mac offer repossessed homes for sale, before they go to auction. You therefore have lots of time to do your due diligence. If you find something you like, you can make an offer up to the auction date. Fannie and Freddie REOs usually don't take as long to close as commercial banks. You can also buy such a house at an auction if you have financing, and you can usually get some very good deals.
As with the banks, there are no worries about title when you buy from Fannie Mae and Frieddie Mac, because escrow will do title searches before closing.
For more information, call Ken at 206-568-2381 or email us.