Foreclosures, short sales and bank owned properties are making up a larger percentage of the inventory of available properties these days. We felt immune for a while, but this deep-seated correction has had its effect here in the Charlottesville area as well. We are fortunate to have the University of Virginia as a solid employer for the area and a hub for keeping our high-tech sector viable. Nonetheless, foreclosure notices in the paper have been increasing in number and some remarkable deals have been made by astute investors willing to take a chance on distressed properties.
If it’s a deal you are looking for, risk is part of the formula. When you buy a foreclosure on the courthouse steps you are buying it “as is” which could include unfiled mechanics liens or other clouds on the title. Vigorous research including property inspections and title work will give you some idea of the deficiencies, but there are no guarantees and no recourse if you are surprised. Still, picking up property for well under market value and turning them into rentals can be an excellent investment for those with the resources to rehabilitate these properties and hang on for the market to rebound bouppteckning.
REOs or bank owned properties are those properties that have gone through the foreclosure process and have been bought back by the bank. These properties are typically in better condition than foreclosures since the banks are willing to protect their assets to some extent and are usually listed with Realtors so they are easily accessible for inspections. These “bank assets” are anything but and are typically priced below market value to move fast. REOs often have multiple offers as soon as they come on the market. Astute buyers are aware that they cannot expect any concessions either in price or repairs, and if they need financing they need to present a full loan application with the bank that owns the property with their original contract. A pre-qualification letter will hold no clout to these banks who know how non-committal such letters are. Do your home inspection before you offer and make your offer as clean as possible-Cash is king.
Short sales are the most frustrating side of this distressed property market. A short sale is when a seller will not gain enough from the sale to pay off the existing debt. When the seller has no other assets to go after, the bank may agree to let the property go for a price that is less than what is owed. Short sales require third party, (bank) approval and the process can be excruciatingly slow, think six to nine months. It may appear that you are negotiating with the owner of the house, and you might have a ratified contract with the owner, but you don’t have a deal until the bank has signed off on the short sale. Short sales are clearly more appealing to banks than foreclosures which cost banks $50,000 on average and should become less cumbersome in the future as banks recognize the need to move inventory.
Never has there been a better time to get a great deal on real estate. Be it multi-family or single family rental property, raw land, a personal residence or a farm, these are historic times and hopefully will never be repeated again. Real estate will always hold its value for it is our place in the world. It’s where we live, work, vacation. It is where we grow our food and build our cities and raise our families. There is nothing theoretical about it.