Florida was one of the areas hardest hit by foreclosures from the beginning from the beginning of the recession to about the start of 2012 when more than 4.1 million to 4.5 million foreclosures took place across the country.
In fact led by Orlando, FL foreclosed homes, and followed by Las Vegas, Nevada and Phoenix, Arizona, may be the best place in the nation to flip houses. Tampa, Lakeland, Miami, FL are also in the top ten cities where flipping residential real estate can be profitable.
Positive environment for investing
Flipping houses refer to buying, renovating and reselling residential real estate—single-family homes, condominiums, townhouses and cooperates—within a 90-day period after acquiring foreclosed homes or other properties. The real estate firm RealtyTrac believes that the”favorable “climate for investors will continue through the rest of the year.
In addition, investors who prefer to rent homes can still earn a decent return on investment. Some investors, who have a buy-and-hold exit strategy, flip homes from time-to-time, which helps fund their purchase of rental houses.
Inventories remain low
April is traditionally a month home buying ratchet up into high gear—as inventory increased 4.12 percent over March. Homes that are listed are on the market 11 percent fewer days than April 2012.
The demand shortage ensures that do not remain available—new or existing homes—about average of 81 days.
According to real estate website Tulia, only 32% of homeowners responding to their survey believe now is a good time to sell. Most home sellers are trying to recoup the home equity they loss during the housing market downturn —-an average loss of 34% and as high as 50% to 60% in Florida, Nevada and Arizona.
Overall inventory has fallen in 135 of the 146 markets measured by Realtor .com Thirty-six of the market experienced a drop in inventory of 20 percent or more.
Another factor for the low inventory over the past several months has been fewer foreclosed homes coming onto the market. Compared to March 2012, when 1.5 million homes were in some phase of foreclosure, the number has dropped to 1.1 million
Approximately 1.1 million homes in the U.S. were in some stage of foreclosure, known as the foreclosure inventory, as of March 2013 compared to 1.5 million in March 2012 and 51% of the peak that occurred in 2010
For the 12 month period ending March 2013, the five states with the highest number of homes foreclosed are:
California – 83,000
Texas – 53,000
Georgia – 48,000
The majority of the foreclosure properties in the U.S. occurred in these five states.
The environment in the real estate market for buying a personal residence or investment property is the best it has been in six or seven years. Many small investors are looking to profit from the current market in homes foreclosed, short sales and other foreclosures. Most people do not have a substantial cash reserve available, but have good credit. Other may have blemished credit and need “creative financing” options.
Whether you are buying your first home, renting properties or flipping houses, understanding the various financing options can help you make the best choice to fund your homes foreclosed and other real estate investment.
Standard real estate financing
Many individuals qualify for financing through conventional sources, such as banks, credit unions or community savings and loans institutions. With interest rates at the lowest level ever, fixed-rate mortgage of 15, 20 or 30 years are a popular choice even for home buyers and investors who are cash-heavy.
However, due to the financial crisis and mortgage problem experienced several years ago, lenders have tightened the credit criteria necessary to qualify for loans. Consequently, you should expect to make a down payment of a minimum of 10% and be able to document your income and have an acceptable debt-to-income ratio to qualify.
The lease with option to buy works best for anyone looking for a personal residence but may not have the credit to qualify for a mortgage. It also works for investors. You simply lease the property until you build the credit to secure financing—usually in 2-3 years. The details of the lease with option vary, but the terms are always negotiable.
For example, you can negotiate to get the property for little or no money down. You can also work out an agreement to have a portion of the monthly lease payment applied towards the purchase of the property.
Often referred to as “creative financing” – meaning you use as little of your money as possible–this strategy uses Other People’s Money (OPM). In this case, the seller functions as your lender. The seller owns the property free and clear—no loans or liens on the property—and is usually motivated to get rid of the property for any number of reasons.
As a result, the seller is willing to do the following:
- Forego the lump-sum payment he or she would normally receive by outright selling the property
- Is willing to carry a promissory note
- Will accept monthly payments
Usually, the seller financing period runs is 5-7 years. Again, the terms are negotiable. Understand that you will need to refinance the home to pay off the seller. It’s much easier to qualify for refinancing.
Seller second mortgage
This is another “creative financing” technique that uses OPM. In this case, the seller takes back a second mortgage on the property that will cover most or all of the down payment for the home. Here’s how it works:
- You prequalify for a loan but need to make a down payment of 20%
- Make an offer for the home contingent on the seller carrying a promissory note for 20%
- You purchase the home without the use of your own money and the seller gets most of their equity upfront.
To make the deal work, you will need to make sure the lender will allow you to obtain financing with a second mortgage attached to the loan.
These are just a few of the strategies you can use to finance the purchase or homes foreclosed and other real estate. In an atmosphere of tight credit, you can choose the strategy that works for your situation and purchase foreclosures or other residential real estate for personal use or for your investment portfolio.
Many individual are looking for safe ways to invest in the real estate market by directly purchasing foreclosed home, short sales, REO properties and other transaction. Many of these homes can be found on free foreclosure homes listings. However, there are other ways to take advantage of the residential real estate investment market.
Individuals looking for alternative ways to get into the market may want to consider Real Estate Investment Trusts or investment networks.
Real Estate Investment Trusts
Investors who do not want the mechanics of directly investing in residential and other real estate have used Real Estate Investment Trusts (REITs). REITs allow people tp invest in a REIT through the service of a financial planner, financial advisor or brokerage house.
The REIT may invest in and manage a portfolio of residential or commercial properties or a combination.
It works the same as buying equities. Potential investors receive a copy of the REIT issuer’s annual report, prospectus and other financial information.
Real Estate Investment Networks
These companies offer a membership site that offers ways for people to invest in real estate for investing in to build a stable cash flow or save for their retirement. Although the terms may vary from company to company, these organizations offer a “full service marketplace” for real estate investors.
• Investors choose from among the inventory of single-family homes from Home Service Providers.
• The properties are located in well-researched “Cash Flow Zones” or located in various cities across the country.
Experienced property providers make available an inventory of investment single family homes. Providers redevelop properties, sell them and manage the investment throughout the ownership period. They must be certified on selected criteria, including:
• Real estate investment references
• Financial strength
• Quality of redevelopment
• Background screening
• Operation efficiency
Many people see join these networks to take advantage of interest rates at record lows for several years. According to the Federal Open Market Committee, the intent is to keep rates historic rates through mid 2015.
This environment makes financial sense for many real estate investors to borrow money to finance and renovate whether they are flipping houses or renting to families.
Investors can also use Individual Retirement Accounts (IRA) another financing alternative. IRAs have not earned people the cash flow or retirement nest egg they expected. Depending on your circumstances, the investment can be tax-free or tax-deferred.
As the housing market continues to move forward, real estate investors who buy foreclosed homes, short sales and other properties have experienced more of a challenge when it comes to finding cheap homes as values continue to escalate.
Experienced investors are familiar with different approaches for ferreting out suitable properties for investment. However, the challenges of today’s market will require one to sharpen their investment approach.
Residential market dynamics
Astute investors understand that the market is a bit difference than it was leading up to the real estate bubble. Investment philosophies that worked probably need a bit of tweaking for the current environment. It helps to be clear on the factors at play in the current market:
• Home values are increasing faster than expected just a few short months ago
• Rental market prices are trending up
• Homebuilders are breaking ground for more units
• Building materials and other construction cost are escalating
• Foreclosures have dropped compared to crisis-level numbers
Investors should note that banks have not flooded the market with its backlog inventory of homes foreclosed. Many economists do not believe there is enough foreclosures homes held by banks that if released could materially affect the demand and price of housing but the “shadow inventory” bears watching.
Rising material and other costs
Builders of single-family homes, townhouses and condominiums have been lured back into the market because of the increase demand for housing and rising home prices. Demographic and social changes, along with millions of former homeowners becoming renters, signal many developers of multifamily homes to get back into the market long before residential builders.
Overall, the inflation rate is under control based on the various economic reports and the Federal Reserve.
However, building costs will likely rise because of increase activities. In addition, in many areas of the country, builders are having difficulties finding skilled labor, which puts upward pressure on wages.
Purchasing REO properties
Although the rate of foreclosure activities, which includes filing notices, foreclosed homes auctions and REO properties, have fallen significantly, the bank owned homes continue to present an accounting and profitability issue for lenders. Many smart investors realized that free foreclosure homes listings are not as plentiful as they were before larger real estate investors started buying up homes by the hundreds in single transactions.
Therefore, they have a strategy of approaching banks to buy REO properties. Many of these foreclosed homes have been finished by developers and others that have never had title transferred to homeowners. Many homes have been titled to borrowers and may be in excellent condition and others that need substantial renovations.
The discounts available depend on the property, local market and just how motivated the bank is to get rid of the homes. The most important aspect of this approach is to find “bargains” that works for your numbers and investment philosophy.
Your exit strategy
You should have your exit strategy in place when you make the REO properties acquisition. Purchasing these properties at good prices ensures you have the margins needed to make the unit attractive to enough to prospective buyers if you are flipping houses, earn a nice profit and move on to the next project on your list.
The demand for good rentals and increasing rents for from these units also present a viable exit strategy, which many real estate investors take advantage of to build a cash flow.
A combination of the two strategies provides a two-prong exit approach that can be very profitable. The ability to work these strategies depends on your resources, including available funds and network.
Investing in single-family rental homes have been the wave in many areas of the country that had hot rental markets, including Phoenix, Atlanta, Las Vegas, Los Angeles, and Orange County. Data provided by The Trulia Rent Monitor and the Trulia Price Monitor tracked the increase in home values and rental prices.
The latest information shows that prices have declined or flatten year-over-year after a torrid last several months.
Why you need this information
These and other reports provide valuable tools foreclosed homes investors and other real estate entrepreneurs can use to monitor their local markets, especially if they have a buy-and-hold exit strategy for their REO investments.
Any local firms or companies with a national reach such as San-Diego based DataQuick. The company compiles rankings by zip codes which show what areas have the highest potential or return on investment.
DataQuick analyze factors like:
1. Property valuation
2. Property appreciation and depreciation
3. Market demand
4. Market supply
5. Distressed property sales
6. Discounts on foreclosed properties and short sales
When evaluating the local, market investors need to consider multiple factors and metric that can affect the value of their REO investments and the rents they receive.
Gather your own metrics
Some of this information is freely available and be gather independently from the real estate agent on your investment team. If you belong to a rental property investment club, you can work with other landlords to accumulate the data
However you get the information, you want to make certain comparisons to help you get a feel for trends in your market. The items these reports cove include:
• Compile rental listing data to calculate an accurate estimate of rents
• Measure the property current value as compared to the volume of distressed homes– short sale listings, foreclosures
• Calculating the neighborhood vacancy rate – local Board of Realtors
• Determine price appreciation projection–sources such as the National Association of Realtors, S&P Case Shiller Home Price Index and CoreLogic Housing Index
• Assess the quality of renters in the market
Whether you use a service or put the information together yourself, foreclosure investors can use the information to improve their choice of target bank owed homes on their free foreclosure homes listings and make more informed buy-and-hold decisions.
Many of the most watched economic indicators point to a solid housing market recovery, in most areas of the country, including Florida, the Miami-Dade area. Home prices are rising home prices, there are fewer distressed proprieties (foreclosures and short sales) and year-over-year increases in both existing homes and new home sales.
The tight housing inventory assures a vibrant market in the near term and prices for single-family homes and condominiums rising gradually.
On the other hand it also provides the environment needed to proper Activities involving foreclosed homes.Miami remain the highest in the country—Florida is rate at the top for all states.
Based on RealtyTrac data, 1 in 79 homes received some form of foreclosure filing from the mortgage lender. This includes initial foreclosure notices, foreclosures auctions and bank owned properties.
Real estate investment environment
The foreclosed properties data follow up on a report released early this year that shows that Miami is one of the best place for foreclosure investors. The trend continues into on through the end of the first quarter.
The dynamics for small real estate investors is more competitive because of scarce inventory and the influx of mega-rich institutional and private equity buyers with the ability to take 100s of homes repo off the market in a single transaction.
The region is also a hotbed of activity for international investors who pay cash for 62% of their residential real estate sales transactions. Then there are regular people who are looking for personal residences.
Buy-and-flip or rental
Many small investors who have entered the real estate market are undecided what type of exit strategy to have for their investments. It depends on real estate investment goals.
Whether you intend to flip cheap homes or rent or both, after you acquired foreclosed homes Miami or other residential property, you will need to ensure you have the capital to make any necessary repairs or renovations.
You will also need enough cash to pay the mortgage and other expenses until to execute the strategy –sell or rent.
Whether you end up flipping or renting out homes, here are a few pointers:
- Make sure you understand what you are doing. This means completing the proper due diligence—most of that occurs in the pre-purchase stage and includes, buying at the right price, estimating the cost of repairs and deciding on a list price or range.
- Get a mentor or team up with an experienced partner mentor if this is your first time flipping houses or becoming a landlord.
- Choose projects in Miami communities with good amenities—where people want to live.
Spend most of improvement dollars for foreclosed homes Miami on the kitchen, bathrooms, flooring and painting for the most impact.
Foreclosed homes California rates ranked at the top of the list for the duration of the foreclosure crisis. In January, the numbers show that initial foreclosure notices declined to an 87-month low, based on data released by the California-based foreclosure data firm. RealtyTrac. Mortgage lenders filed 62 percent fewer cases in December 2012 compared to January and a 75 percent drop from January last year.
This is the single biggest month-to-month decline since the form has been tracking the data. The trend of fewer foreclosure filing continued through the first quarter of 2013 as California dropped to tenth place in the nation for foreclosure-related activities comprised of initial foreclosure notices, foreclosures auctions and bank repossessions.
California foreclosure trends mirrors U.S.
The dynamics in the California residential real estate market affect buyers for personal residences and foreclosed properties investors. Real estate MLSs and free foreclosures homes listing have fewer inventory, which reflects the improving market and a dramatic drop in borrowers losing their homes.
California statistics mimic foreclosure activities around the country. In 2012, the number of filings in the nation decreased 3% in 2012 compared to 2011. In 2010, foreclosures filings peaked at 2.9 million households—36% higher than 2012.
Many housing advocates attribute the Homeowner Bill of Rights, which became law on January 1, to the drop in initial filings for foreclosed homes California. One of the key provisions of the regulation prevents mortgage servicers from pursuing foreclosure when it has ongoing discussions for an alternative to California foreclosed homes. Florida, Washington and Nevada have similar laws.
It takes about 347 days to complete a foreclosure in California.
Accelerated housing prices
After falling nearly, home prices in California have been recording impressive gains. For eight straight months, the prices have registered double digit year-over-year increases–the most since 2006.
In a list of the top seven cities for home price increases, six are located in California with the median home price and the year-over-year increase, according to Realtor.com:
• Sacramento – $279,900, 40.30%
• Santa Barbara-Santa Maria-Lompoc- $689,950, 38.01%
• Oakland – median list price: $419,000, 30.93%
• San Jose – median list price: $607,000, 29.45%
• San Francisco – median list price: $769,000, 25.71%
• Fresno – median list price: $188,900, 21.87%
The Phoenix-Mesa area of Arizona recorded a median list price of $218,000 and a year-over-year home price increase of 24.64%. Even with the significant home price appreciation, home values remain more than 34 percent below peak prices.
Changing market fundamentals
Despite warnings that the market is behaving in a manner leading up to housing bubble, some economists believes solid dynamic are at play. This includes companies in the coastal cities creating more jobs, which give people the confidence to buy homes.
The increase demand for housing translates into higher home prices in a market, especially in a market without sufficient inventory.
In fact, inventory levels have dipped below ten year lows. This has caused bidding wars—where three or four offers have become the norm—and indicative of the market before it collapsed.
This environment can be very profitable for foreclosed homes California who can find homes repo and flip houses or provide rental properties.
The National Association of REALTORS (NAR), CoreLogic and RealtyTrac publish annuals reports that reveal some important information about trends in the housing market as it relate to vacation homes and investment properties, including foreclosed homes and short sales.
Twenty-four percent of the residential homes sales in 2012 consisted of investment homes—down from 27 percent the previous year, but the second highest rate since 2005.
The NAR says that the number of transactions for investment residential real estate dropped 2.1 percent compared to sales for 2011. In 2011, sales for investment homes registered a spectacular 64.5 percent increase over 2010.
Homes prices rose on average 15 percent in 2012—reaching a median value of $115,000. More than 50 percent of residential investment real estate that sold last year involved investor who paid cash. Sixty-two percent of international buyers of investment homes pay cash, based on recently released data.
Short Sales and foreclosures
According to the NAR, 47 percent of all purchases for investment homes consisted of distressed properties—foreclosures and short sales. RealtyTrac reports that 43 percent of all home sales in the United States in 2012 were made up of distressed property sales—21 percent homes foreclosed and 22 percent short sales transactions.
More than 50 percent of completed foreclosures occur in five state based on data released in the Corelogic’s Annual Foreclosure Report.
Here is the list of states with the most foreclosed homes sales completed on a year-over-year basis—February 12, 2012 through February of this year.
1. Florida — 95,000
2. California – 90,000
3. Michigan – 73,000
4. Texas – 57,000)
5. Georgia 49,000
Florida (9.9%), New Jersey (7.2%), New York (5.0%), Nevada (4.6%) and Illinois (4.5%) recorded the highest percentage of homes foreclosures inventory compared to the number of homes carrying a mortgage.
Other real estate investor metrics
Sometime it helps to know who the competitors are. The NAR report reveals that the residential real estate investor you may encounter at foreclosure auctions and other related activity usually has a median age of around 45.
The person lives within a median distance of 21 miles from the investment houses bought. Twenty-nine percent of the investors lived more than 100 miles from the investment property.
Investors who secured mortgages for the properties usually made a significant down payment a median of 27 percent of the purchase price, which remained the same as the previous year. More and one-third (35%) of buyers purchased more than one investment home.
Here are the most common reasons investors gave for their real estate activities:
• Rental income – 55 percent
• Diversify asset or a good opportunity – 30 percent
• Vacation or family retreat – 20 percent
Thirty-six percent of all investment homes-homes foreclosed, short-sales and standard real estate sales took place in the South, followed by the West, Northeast and Midwest , with 28 percent, 20 percent and 16 percent , respectively.