When you’re flipping a house, time is money. And you don’t have time to make a lot of rookie mistakes.
That’s what Steve Cederquist learned when he first began renovating and flipping properties in 1994.
“I bought a house with a bad foundation and lost $30,000 on the deal,” says Cederquist, a general contractor who’s now a veteran house flipper and president of Cornerstone Property Services in Huntington Beach, CA. “I didn’t think I’d have to do much to a 1,200-square-foot house. But it cost me a ton of money.”
No house flipper is born wise. So we talked to several pros who outlined mistakes newbie flippers often make. Avoid these pitfalls to ensure your profits come out on top.
Mistake No. 1: Not getting a home inspection
This one’s a biggie. Even if you plan on making major changes to the house, you still need an inspection. Of course, if you’re going to tear down the whole thing, there’s no need for one. But house flipping usually involves making cosmetic changes—maybe opening a wall or remodeling a bathroom. It’s a makeover—not a complete rebuild. So you need to get it checked out before you buy.
“Never buy as is,” Cederquist says. “I can’t tell you the number of times people lose everything because they don’t do the safest thing: getting a home inspection.”
Inspections can turn up all kinds of problems. Some issues, like cabinet doors that don’t close properly, you won’t care about if you’re planning to rip and replace the kitchen anyway. Others, such as a cracked foundation, can cost you dearly.
At the very least, an inspection can identify problems you can use to bargain down the price. Every dollar counts toward your bottom line; whatever money you save on the purchase price will help you turn a profit when you flip.
Mistake No. 2: Overestimating your renovation skills
Every dollar saved on labor is a dollar you earn when you flip a house. But all too often flippers think they’re better plumbers, drywall hangers, and carpenters than they really are.
“This ends up being a major drain of time and resources, because you must redo work and spend twice the amount of money fixing it,” says Allen Shayanfekr, co-founder and CEO of Sharestates, an online crowdfunding platform for real estate financing.
There’s a simple answer to your DIY delusions of grandeur, Shayanfekr says: “Consult an expert prior to undertaking any major project.”
And make sure to ask for an estimate in writing. That way you’ll know what you’ll have to spend to make the house attractive to buyers.
Mistake No. 3: Underestimating total costs
Inexperienced flippers often add the purchase price to renovation costs and figure the sum is their break-even point. If only.
But the true cost of your flipping adventure involves much more. Think: state and federal taxes on profits, real estate commissions, title searches, transfer taxes, inspection and appraisal costs, and a bunch of other fees that show up at closing when you buy, and again when you sell your property.
Do yourself a favor and thoroughly research the total cost of your project (don’t forget permit fees, which can be substantial) and then add a cushion—10% to 15% is customary.
“Be prepared to pay over your expected fees when coming to the closing table,” Shayanfekr says. “Better safe than sorry.”
Mistake No. 4: Being a jerk
Even if you’re determined to do this on your own—you’re a whiz at mitering crown molding, after all—successful flipping requires some level of interaction with others. You’ll need to build a trusted team of craftsmen, suppliers, lenders, and real estate professionals that you can call on time after time.
Not only do you need to find people you can depend on to get the job done quickly and on budget, but your teammates must also be able to trust you to treat them with respect, pay on time, and not make their lives a living hell by changing your mind repeatedly.
“People want to do business with others they like and trust,” says Cody Sperber, who has flipped more than 1,000 properties in 15 years and has started a mentoring program called Clever Investor, based in Tempe, AZ. “So many deals have materialized because I listened and was empathetic. Not because I was shrewd and smart.”
Mistake No. 5: Jumping the gun
Some flippers put a “For Sale” sign on the property before completing renovations, hoping a buyer will be able to envision how gorgeous the house ultimately will be.
That’s a big mistake, says Bill Golden, an Atlanta-area real estate agent.
“Many people think they can get a jump on things by getting folks interested before it’s done, causing multiple issues,” Golden says. “Many people don’t have vision and can’t really see how things will look once they’re done. Also, missing molding, trim, and other details that may seem minor to you can reflect poorly on what the buyer perceives the quality of the renovation to be.”
Don’t list the project until it’s move-in ready. It will save time in the long run, because potential buyers won’t nag you about missing finishes you already plan to include.
Mistake No. 6: Designing a flip like you’re going to live there
Flipper rule of thumb: Never fall in love with a property.
Unlike your own home—where you’ll raise a family, build memories, and make modifications that suit your needs—flips are short-term projects that must appeal to the widest possible market.
When you design your flip, take yourself out of it. You may love aubergine, but stick to whites and neutrals when you pick paint colors. Research design trends, walk through open houses of new construction, and survey real estate agents to find out what’s selling and what’s not. If you don’t create an attractive yet blank canvas, your flip may languish on the market—costing you money with each painful, passing day.
“Don’t get attached to the house, because you’re not going to live there,” Cederquist says. “Keep it generic, what’s popular. Then stick to a design and budget.”
If you’re hoping to score a deal while house hunting (and who isn’t?), one bargain basement option well worth exploring is a HUD home. So what is a HUD home? Simply put, it’s a place owned by the U.S. Department of Housing and Urban Development, but there’s some backstory here, so allow us to explain.
Long before a home becomes the property of HUD, it typically was owned by a regular homeowner who’d made this purchase with an FHA loan. FHA loans are easier to qualify for than a conventional loan because they require a low down payment (as little as 3.5%). However, if the owner ends up unable to pay his monthly mortgage, he ends up in foreclosure, which means the home goes to HUD, which then must figure out how to unload this home and make back its money. That’s where you come in!
The process of buying a HUD home varies from a conventional sale in a couple of ways, so here’s what you’ll want to know before you buy.
Benefits of a HUD home
The government doesn’t want to own these foreclosed homes any longer than it needs to, so HUD homes are priced to move, often below market value. Plus, HUD offers special incentives to buyers in certain markets to sweeten the deal.
For example, the HUD “Good Neighbor” program offers HUD homes in revitalizing areas at a 50% discount to community workers (e.g., teachers, police officers, firefighters, and EMS personnel) who plan to live in the property for at least 36 months.
Other perks: Low down-payment requirements or sales allowances you can use to pay closing costs or make repairs. So be sure to inquire about the possibilities; it could be an even better bargain than how it first seems. Another bonus for home buyers is that HUD gives preference to owner-occupants who intend to live in the home for at least one year, so odds are good you’ll beat out investors to boot!
How to buy a HUD home
HUD homes aren’t listed on conventional real estate websites, and can instead be found at hudhomestore.com, where you can shop for homes by state or ZIP code. You never know what you might find, in what location and at what price.
Listings typically contain photos, an asking price, and—here’s where things get different—a deadline by which you should submit your offer. HUD homes are sold through an auction process; once the deadline is past and bids are in, HUD reviews its options. If none of the bids is deemed acceptable (usually because it’s too low), HUD extends the auction deadline and/or lowers the asking pricing until a match is made.
All offers are considered, but in almost every case, the highest acceptable bid wins, says Mark Abdel, a real estate professional with Re/Max Advantage Plus in Minneapolis–St. Paul. Which begs the question: How much should you offer? Well, that all depends on how hot the local market is and the condition of the home (more on that next).
Risks of HUD homes
HUD homes are sold as is—meaning what you see is what you get. If the leaky roof or electrical needs repairs, it’s all on you to cover the costs. That’s why it’s critical to get a home inspection before you put your bid in.
“A quality home inspection will alert you to what types of repairs or improvements need to be made, which you should factor into your bid accordingly,” advises Abdel.
That’s not to say that HUD homes always sit in disrepair. Each one, once HUD takes it over, is assigned a “field service manager” who keeps a watchful eye on the home to make sure it’s secure and provides maintenance while the home is unoccupied. The field service manager may even oversee cosmetic enhancements or repairs, depending on the home’s condition, before the bidding process begins. Some HUD homes are even move-in ready, so never presume you’ll end up with a clunker; you could luck out!
Where to get HUD home loans
All financing options are available for HUD homes, including FHA, VA, and conventional financing. If you’re buying a HUD home that needs repairs, check out a FHA 203k loan, which can allow you to include the renovation costs in the loan. Your real estate agent can help you determine what programs you might be eligible for.
Also: In order to represent you in your bid for a HUD home, your real estate agent must be officially registered with HUD. Many are, so ask your Realtor® or else you can specifically search for HUD-registered agents at hudhomestore.com.
Curious to learn more about how to make money in real estate? We don’t blame you—real estate can be a solid investment as part of an overall portfolio. Only what’s the best way to invest in properties without too much risk? There are two main strategies: Fix and flip, or buy and rent. Let’s wade into the pros, cons, and money-making potential of each, to help you determine if they’re right for you.
Make money in real estate with: The fix and flip
Flipping houses might make for must-see TV, but it can also make for a lucrative investment strategy, if you do it right. In fact, a recent RealtyTrac report found that homes flipped in the first quarter of 2016 yielded an average gross profit of $58,250—the highest average gross flipping profit since the fourth quarter of 2005. It also found that home flippers received returns of almost 50% in the first quarter of 2016.
Advantages of flipping
Aside from sizable profits, here are some of the other main benefits of the fix-and-flip approach to real estate:
Flipping is cheap: Most investors who focus on fix and flips typically try to find distressed properties such as foreclosures, which are usually sold for under market value, says Than Merrill, CEO of FortuneBuilders. That translates to a smaller upfront investment and less financing needed from your lender.
Flipping is fast: Buy it, make repairs, and you’re out. At least, that’s the idea. The average length of time it takes to fully rehab and sell a property is about six months, according to RealtyTrac. This means that your or your investor’s capital won’t be tied up indefinitely. And second, since you will (hopefully) only be holding onto the property for a relatively short period of time, you’re unlikely to be affected by market fluctuations—or the headaches of long-term ownership.
“The best benefit of fix and flips is the fact that investors do not have to deal with becoming a landlord, or dealing with property managers and tenant nightmares,” Merrill says. Even after you have gone through the arduous process of finding reliable tenants, it’s possible they may damage the property or skip out on rent payments. “Tenant issues tend to eat up a lot of time and money and cause unnecessary stress,” he notes.
Potential flip flops
But flipping does come with downsides, like the following:
Transactional costs: Obviously, the first action you take with a flip is the “fix,” and home repairs can be expensive. You can cut costs by doing some of the rehab work yourself, and be sure to find a contractor you trust and get him to give you a realistic estimate of the budget you’ll need. Once renovations begin, remember that time is literally money: Don’t forget the interest payments that accumulate while the property is being rehabbed.
Unforeseen complications: These might range from zoning or permit complications to gas, electrical, or septic problems. Due diligence can help you sidestep many issues, but be sure to include room for unanticipated hurdles in your budget. And make sure your renovations are done with the proper permits and paperwork; otherwise you may have trouble selling it later.
Make money in real estate with: Buy and rent
Recent RealtyTrac data has found that rents are rising faster than median home prices in 45% of the markets analyzed. And that means more profits for wannabe landlords who decide to buy property, then rent it out. “The higher that rents continue to climb, the more profits passive income investors should be able to realize,” Merrill says.
Advantages of renting
This “buy and hold” approach comes with its own unique benefits, like the following:
Long-term wealth potential: Since real estate has historically appreciated over time, it is likely that the longer you hold the property, the more you can make. You can also outlast the market dips, sitting out market downturns until conditions improve, while continuing to collect rent.
The risks of renting
Yet there are dangers to this investment strategy as well:
Maintenance hassles: Clogged toilets. Broken garage doors. Rodents. The fix-it list can be endless, and many rental property owners are tasked with handyman duties, as well as collecting rents (and don’t underestimate the challenge of finding and keeping quality tenants). If you’re not cut out for all that work, you can hire a property manager, but it comes at a cost, approximately 6% to 12% of the monthly rent payment.
Tied-up capital: While you will likely be receiving monthly cash flow from rents, the bigger payoff can be a long way down the road, since you’re holding the property longer than you would a home you’re flipping. That means that you could miss out on other investment opportunities, since your capital is unavailable until you sell.
A cautionary note
While both options offer potential for making money, real estate is not for everyone, cautions Realtor® Ed Laine, partner/broker of Miller Laine Properties in the Seattle area. “It can be a great investment and deliver some significant returns, but I have seen that people with lots of enthusiasm and little experience can make huge mistakes. A knowledgeable real estate agent can help ensure you don’t inadvertently buy a nightmare.”
Realty Executives specializes in foreclosed, shortsale, and HUD owned properties! With all the “buzz” in the media about foreclosure properties, you may or may not have heard of “HUD Owned” properties. These properties have excellent investment potential, as they are usually listed well beneath tax value! However, did you know that most agents are not able to assist you with HUD properties? Realty Executives is proud to be HUD Certified Selling Brokers for the Carolina HUD Homestore – which means WE are the professionals to call for your HUD Home purchase!
Please note: We are not exclusive agents for, nor owned by HUD or any of it’s affiliates.
Frequently Asked Questions
Question: I hear that HUD sells homes. How can I buy one?
Answer: Click here to view listings of HUD homes available. If you find a home that interests you, you’ll need to contact a HUD-approved real estate broker (Realty Executives is HUD-approved), who can submit a bid for you. Successful bids are posted right on the page for your state.
Question 2: How can I get listings of HUD homes for sale?
Answer: You can see lists of HUD homes for sale right on HUD’s web page. In addition, here is a link to listings of homes being sold by other federal agencies. You can even get directions to the properties that interest you, see their locations on a map, and find out what schools are in the area.
Question 3: Will HUD buy my house? Can I sell my home to HUD?
Answer: No. HUD does not buy homes. The homes that HUD sells come into HUD’s possession as a result of defaults on FHA (HUD) insured mortgages.
Question 4: How do I know if I qualify for a mortgage?
Answer: There are many different kinds of mortgages available, and qualification requirements vary. The best thing for you to do is shop around – talk to two or three local lenders to find out what kinds of mortgages they have available that could fit your situation. There are a number of mortgage calculators online that can give you some idea about your ability to qualify for a mortgage. HUD offers a good calculator, in the “homebuyers kit.” You also might want to contact a Realty Executives broker, as they may be able to direct you to the kinds of mortgage programs that might fit your needs.
Question 5: I’ve heard of the Officer Next Door and Teacher Next Door programs. How can I find out more?
Answer: Teacher Next Door and Officer Next Door have been combined into HUD’s Good Neighbor Next Door.
Question 6: I’m considering buying a manufactured home. Does HUD have any information about these homes?
Answer: They provide lots of great information about manufactured homes in their “homebuyer’s kit,” including an excellent consumer’s guide. As always, please consult one of our Executives, so that we may assist you with the home buying process – whether stick built, or manufactured.
Are you looking to buy a new home? Are you thinking that now’s a great time to find bargains? Before you make an offer, it pays to know a little about the seller’s situation.
If a home is being sold for below what the current seller owes on the property—and the seller does not have other funds to make up the difference at closing—the sale is considered a short sale. Many more home owners are finding themselves in this situation due to a number of factors, including job losses, aggressive borrowing against their home in the days of easy credit, and declining home values in a slower real estate market.
A short sale is different from a foreclosure, which is when the seller’s lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.
You’re a good candidate for a short-sale purchase if:
- You’re very patient. Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender (or lenders, if there is more than one mortgage) has to approve the sale before you can close. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.
- Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you’re preapproved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.
- You don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property—or you need to be in your new home by a certain time—a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.
If you’re serious about purchasing a short-sale property, it’s important for you to have expert assistance. Here are some people you want to work with:
- Experienced real estate attorney. Only about two out of five short sales are approved by lenders. But a good real estate attorney who’s knowledgeable about the short-sale process will increase your chances getting an approved contract. Also, if you want any provisions or very specialized language written into the purchase contract, a real estate attorney is essential throughout the negotiation.
- A qualified real estate professional.* You may have a close friend or relative in real estate, but if that person doesn’t know anything about short sales, working with him or her may hurt your chances of a successful closing. Interview a few practitioners and ask them how many buyers they’ve represented in a short sale and, of those, how many have successfully closed. A qualified real estate professional will be able to show you short-sale homes, help negotiate the purchase when you find the property you want to buy, and smooth communications with the lender. (All MLSs permit, and some now require, special notations to indicate that a listing is a short sale. There also are certain phrases you can watch for, such as “lender approval required.”)
- Title officer. It’s a good idea to have a title officer do an initial title search on a short-sale property to see all the liens attached to the property. If there are multiple lien holders (e.g., second or third mortgage or lines of credit, real estate tax lien, mechanic’s lien, homeowners association lien, etc.), it’s much tougher to get that short sale contract to the closing table. Any of the lien holders could put a kink in the process even after you’ve waited for months for lender approval. If you don’t know a title officer, your real estate attorney or real estate professional should be able to recommend a few.
Some of the other risks faced by buyers of short-sale properties include:
- Potential for rejection. Lenders want to minimize their losses as much as possible. If you make an offer tremendously lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted months. Or the lender could make a counteroffer, which will lengthen the process.
- Bad terms. Even when a lender approves a short sale, it could require that the sellers sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to some financially desperate sellers. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.
- No repairs or repair credits. You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and may not agree to requests for repair credits.
The risks of a short sale are considerable. But if you have the time, patience, and iron will to see it through, a short sale can be a win-win for you and the sellers.
* Not all real estate practitioners are REALTORS®. A REALTOR® is a member of the NATIONAL ASSOCIATION OF REALTORS® and is bound by NAR’s strict code of ethics. However, ALL of our Executives ARE licensed Realtors.
Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.
If you’re thinking of selling your home, and you expect that the total amount you owe on your mortgage will be greater than the selling price of your home, you may be facing a short sale. A short sale is one where the net proceeds from the sale won’t cover your total mortgage obligation and closing costs, and you don’t have other sources of money to cover the deficiency. A short sale is different from a foreclosure, which is when your lender takes title of your home through a lengthy legal process and then sells it.
1. Consider loan modification first. If you are thinking of selling your home because of financial difficulties and you anticipate a short sale, first contact your lender to see if it has any programs to help you stay in your home. Your lender may agree to a modification such as: Refinancing your loan at a lower interest rate; providing a different payment plan to help you get caught up; or providing a forbearance period if your situation is temporary. When a loan modification still isn’t enough to relieve your financial problems, a short sale could be your best option if:
- Your property is worth less than the total mortgage you owe on it.
- You have a financial hardship, such as a job loss or major medical bills.
- You have contacted your lender and it is willing to entertain a short sale.
2. Hire a qualified team. The first step to a short sale is to hire a qualified real estate professional and a real estate attorney who specialize in short sales. Interview at least three candidates for each and look for prior short-sale experience. Short sales have proliferated only in the last few years, so it may be hard to find practitioners who have closed a lot of short sales. You want to work with those who demonstrate a thorough working knowledge of the short-sale process and who won’t try to take advantage of your situation or pressure you to do something that isn’t in your best interest. A qualified real estate professional can:
- Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
- Help you set an appropriate listing price for your home, market the home, and get it sold.
- Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
- Ease the process of working with your lender or lenders.
- Negotiate the contract with the buyers.
- Help you put together the short-sale package to send to your lender (or lenders, if you have more than one mortgage) for approval. You can’t sell your home without your lender and any other lien holders agreeing to the sale and releasing the lien so that the buyers can get clear title.
3. Begin gathering documentation before any offers come in. Your lender will give you a list of documents it requires to consider a short sale. The short-sale “package” that accompanies any offer typically must include:
- A hardship letter detailing your financial situation and why you need the short sale
- A copy of the purchase contract and listing agreement
- Proof of your income and assets
- Copies of your federal income tax returns for the past two years
4. Prepare buyers for a lengthy waiting period. Even if you’re well organized and have all the documents in place, be prepared for a long process. Waiting for your lender’s review of the short-sale package can take several weeks to months. Some experts say:
- If you have only one mortgage, the review can take about two months.
- With a first and second mortgage with the same lender, the review can take about three months.
- With two or more mortgages with different lenders, it can take four months or longer.
When the bank does respond, it can approve the short sale, make a counteroffer, or deny the short sale. The last two actions can lengthen the process or put you back at square one. (Your real estate attorney and real estate professional, with your authorization, can work your lender’s loss mitigation department on your behalf to prepare the proper documentation and speed the process along.)
5. Don’t expect a short sale to solve your financial problems. Even if your lender does approve the short sale, it may not be the end of all your financial woes. Here are some things to keep in mind:
- You may be asked by your lender to sign a promissory note agreeing to pay back the amount of your loan not paid off by the short sale. If your financial hardship is permanent and you can’t pay back the balance, talk with your real estate attorney about your options.
- Any amount of your mortgage that is forgiven by your lender is typically considered income, and you may have to pay taxes on that amount. Under a temporary measure passed in 2007, the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act, homeowners can exclude debt forgiveness on their federal tax returns from income for loans discharged in calendar years 2007 through 2012. Be sure to consult your real estate attorney and your accountant to see whether you qualify.
- Having a portion of your debt forgiven may have an adverse effect on your credit score. However, a short sale will impact your credit score less than foreclosure and bankruptcy.
A federally funded program to help homeowners avoid foreclosure has helped 15,000 people in North Carolina, and still has funding to help an additional 6,000 homeowners.
The program, which is offered by the N.C. Housing Finance Agency and funded by the U.S. Department of the Treasury, makes mortgage payments for qualified unemployed workers.
Eligible homeowners can receive a zero-interest, deferred loan of up to $36,000 to pay their mortgage and mortgage-related costs for up to 36 months while they seek or are retrained for a new job. Eligible homeowners may also receive a zero-interest loan to pay off a second mortgage.
Homeowners do not need to be behind on their mortgage to apply. Before providing assistance, the N.C. Finance Agency looks at borrowers’ mortgage payment history and whether their existing mortgage would be affordable if they found other employment.
The statewide program has been in place since late 2010.
To find out more about the program call 888-623-8631 or visit www.NCforeclosurePrevention.gov.
Home owners who once lost their homes to foreclosure and short sales — known as “boomerang buyers” — are becoming a growing force of home buyers again.
“Their time out of the market may be shorter than many Americans might expect,” USA Today reports. “People who go through foreclosure can rebuild credit records and qualify for home loans again in three to seven years if they manage their finances well.”
More than 4.7 million home owners are estimated to have lost their home to foreclosures or short sales since 2007. Seventy percent of them will likely return to home ownership within eight years of their short sale or foreclosure, according to estimates by John Burns Real Estate Consulting. And with the housing downturn starting about six years ago, this could be the first big year for boomerang buyers. Boomerang buyers could possibly account for 10 percent of home sales this year, Burns estimates.
His firm projects that boomerang buyers who lost homes in 2007 through 2012 will number 500,000 a year in 2013 through 2016.
And with home prices still relatively low and mortgage rates hovering at record lows, some boomerang buyers may even qualify for a mortgage that is cheaper than their previous one.
For example, one former home owner in Las Vegas, Dave Peterson, says he lost his home in foreclosure and then declared bankruptcy when he hit financial hardship a few years ago. But last year, he was able to buy a $280,000 home with his wife — bigger than the home they originally owned and lost to foreclosure. Peterson was able to get a 3.74 percent, 30-year fixed-rate mortgage with no money down through the Department of Veterans Affairs, so his monthly mortgage payments are $1,600 — compared to $3,000 for the smaller home he lost to foreclosure.
Source: “Boomerang buyers bring muscle to rebounding housing market,” USA Today (April 1, 2013)
Over the last several months the foreclosure activity has continued a steady decrease as lenders encouraged short sales and increased the number of loan modifications offered to struggling homeowners – partly due to the terms of the foreclosure settlement agreements. At the same time, investor and homebuyer confidence has risen and home prices have increased, turning many local housing markets from a buyer’s market to a seller’s market.
However, recent reports about February foreclosure activity indicates some back peddling for some states.
Increase in Foreclosure Activity
Despite the promising real estate market gains around the country throughout the last year, some states experienced significant increases in foreclosure activity in February.
For example, the number of notices of defaults sent out increased 41.3% from January to February in California. This is the first increase in foreclosure activity from month to month in the state of California since July of 2012.
Along with an increase in foreclosure activity in California, the foreclosure activity in the Miami-Dade area of Florida increased 39% from February 2012 to February 2013 with a 20% increase in foreclosures from January to February of this year. Palm Beach, Florida also saw an annual increase in foreclosure activity of 59%.
In short, some states have experienced an increase in foreclosure activity in February; however, the overall real estate market is still improving. Plus, minor setbacks are expected as issues such as unethical lender actions are worked out, clearing up the foreclosure pipeline.
Buying Real Estate in Today’s Market
If looking for great foreclosure deals, you can turn to judicial foreclosure states since they tend to have higher foreclosure inventories and therefore more opportunities for discount properties. Or, you can look for specific cities that currently have both an active job market and booming housing market for real estate markets that are making significant strides toward recovery. For example, the San Jose area of California has experienced strong housing market gains (rising home prices) and has a positive employment outlook for the year.
Other cities with projections of employment gains and a strong housing market include Portland, Maine; Salt Lake City, Utah; Tucson, Arizona; Des Moines, Iowa, Poughkeepsie, New York; Richmond, Virginia; Minneapolis, Minnesota; Bakersfield, California; and Houston, Texas.
The great news is that there are still some amazing foreclosure deals on the current real estate market that are perfect for both investors and potential home buyers. The key is knowing where to look. When purchasing foreclosures (or any other property for that matter) make sure you take the location into consideration, closely examining the local real estate market to make sure you are making a good investment decision.