FORECLOSURE Q&A: A fortune in foreclosures?
Investors are rushing to take advantage of the sharp rise in seized properties, but many aren't aware of the risks
BY GRETA GUEST
FREE PRESS BUSINESS WRITER
October 22, 2006
The rapid pace of Michigan foreclosures in recent months has more buyers looking at the real estate market as a good investment, agents who specialize in foreclosures say.
Many investors do make good money in the foreclosure market, but it can be tricky for novice real estate investors, said Marshall Mandell, associate broker for RE/MAX in Farmington Hills.
"If you can buy and hold real estate for a number of years, I would say it is a good time to buy now. For a short-term goal, it is riskier," Mandell said.
Michigan ranked third nationwide for foreclosures in September, behind Colorado and Nevada, according to RealtyTrac, an Irvine, Calif.-based online foreclosure Web site.
Michigan reported 7,846 properties entering foreclosure in September, a 14% increase from August and almost triple the rate of September 2005. That works out to one foreclosure filing for every 538 households.
And metro Detroit ranked second nationally among metropolitan areas, with one foreclosure filing in September for every 197 households, or a total of 4,190 properties entering some stage of foreclosure. The Greeley, Colo., area had the highest default rate.
Foreclosure filings are up 39% nationwide this year and already have exceeded the total reported for 2005. RealtyTrac predicts that if the current pace continues, foreclosures will exceed 1.2 million by the end of the year.
Tricia Raymond, an agent for RE/MAX in Bloomfield Hills, says she thinks it will take time for the southeast Michigan economy to perk up again. She said the high foreclosure rate is tied to layoffs and people who took on second mortgages during the refinancing boom before interest rates started going up again.
"When people get tired of the stock market, they try real estate," Raymond said. "Detroit can come back, but we have to have some jobs to come back to. It is going to be rough in the next two years here."
Right now, properties -- including foreclosures -- stay on the market an average of eight months before they sell, she said.
"We are at or near a lull in our market," said Dave Kashat, associate broker with Keller Williams Realty in Livonia. "You can never say when the bottom is. Every real estate market goes through its boom-and-bust cycle."
Three foreclosure specialists -- Marshall Mandell, Tricia Raymond and Dave Kashat -- appeared on a panel last week at a meeting of the Real Estate Investors Association of Oakland. Here are some of their answers to questions that arose.
QUESTION: When negotiating a price, do banks take into consideration that the Michigan market is very slow right now?
Kashat: I've noticed the banks are starting to get more aggressive with their prices.
Raymond: They know when they really need to dump these properties.
Mandell: You have to consider that their holding costs are very low. They can hold these properties for a very long time.
Q: Where does the average person find listings of foreclosed properties for sale?
Raymond: There is no one place that lists everything. It is private enterprise. You have to go company to company, foreclosure site to foreclosure site. Real estate agents can usually find out more about the properties.
Q: Is it better to try to bid on a property at auction or after it is in the bank's possession?
Mandell: The property may be worth $190,000 and the opening bid is $190,000, so the only one to take the property back is the bank. There is no spread for the typical investor.
Typically, you will not have been able to preview the property prior to the sheriff's auction. After the listing period, you can view the property. Some of them are in terrible condition. They may have mold or built-in structural damage that is not apparent from the exterior. Sometimes they are heavily vandalized, but you won't know until you see it. More and more they are stealing the copper, aluminum siding, furnaces, water heaters ... they are selling these things for scrap.
Kashat: Some investors will buy the property sight-unseen and plan on doing total rehabs, but that is not the type of risk the average person should be taking on. They should wait and do a full assessment of the property.
Q: How do you get your offer accepted by the bank?
Raymond: The bank is not emotional about what it is selling. It has a price just like anything else in a store. It will typically be within 10% of their list price.
Mandell: If you really want the house, then don't play games with your offer. There is a lot of fallacy around the banks. People think the banks have to get these properties off the books and they are willing to take a loss. Banks are banks. They are in the money business. There are whole departments set up to make sure they don't lose money on these properties.
Kashat: There are a lot of things you take into consideration. The bank usually lowers the price. Offering 50% is probably not going to get you anywhere.
Q: What does it take to make money on foreclosed property?
Raymond: You've got to cherry-pick your deals. In a buyer's market all the basics apply. An investor has to think about who the end buyer is going to be.
Mandell: Buying right and knowing what to fix and when to fix it ... and having a good crew who can do that for you.
Q: What are some of the bigger risks in buying foreclosed property?
Kashat: One of the biggest risks is not having the right person advise you -- and just being aware of what you are agreeing to. Some banks pass along their closing costs to you.
Mandell: Sometimes the foreclosures are more damaged than an owner-occupied home because they have been vacated and sometimes squatters have been through them.
Investors are rushing to take advantage of the sharp rise in seized properties, but many aren't aware of the risks
BY GRETA GUEST
FREE PRESS BUSINESS WRITER
October 22, 2006
The rapid pace of Michigan foreclosures in recent months has more buyers looking at the real estate market as a good investment, agents who specialize in foreclosures say.
Many investors do make good money in the foreclosure market, but it can be tricky for novice real estate investors, said Marshall Mandell, associate broker for RE/MAX in Farmington Hills.
"If you can buy and hold real estate for a number of years, I would say it is a good time to buy now. For a short-term goal, it is riskier," Mandell said.
Michigan ranked third nationwide for foreclosures in September, behind Colorado and Nevada, according to RealtyTrac, an Irvine, Calif.-based online foreclosure Web site.
Michigan reported 7,846 properties entering foreclosure in September, a 14% increase from August and almost triple the rate of September 2005. That works out to one foreclosure filing for every 538 households.
And metro Detroit ranked second nationally among metropolitan areas, with one foreclosure filing in September for every 197 households, or a total of 4,190 properties entering some stage of foreclosure. The Greeley, Colo., area had the highest default rate.
Foreclosure filings are up 39% nationwide this year and already have exceeded the total reported for 2005. RealtyTrac predicts that if the current pace continues, foreclosures will exceed 1.2 million by the end of the year.
Tricia Raymond, an agent for RE/MAX in Bloomfield Hills, says she thinks it will take time for the southeast Michigan economy to perk up again. She said the high foreclosure rate is tied to layoffs and people who took on second mortgages during the refinancing boom before interest rates started going up again.
"When people get tired of the stock market, they try real estate," Raymond said. "Detroit can come back, but we have to have some jobs to come back to. It is going to be rough in the next two years here."
Right now, properties -- including foreclosures -- stay on the market an average of eight months before they sell, she said.
"We are at or near a lull in our market," said Dave Kashat, associate broker with Keller Williams Realty in Livonia. "You can never say when the bottom is. Every real estate market goes through its boom-and-bust cycle."
Three foreclosure specialists -- Marshall Mandell, Tricia Raymond and Dave Kashat -- appeared on a panel last week at a meeting of the Real Estate Investors Association of Oakland. Here are some of their answers to questions that arose.
QUESTION: When negotiating a price, do banks take into consideration that the Michigan market is very slow right now?
Kashat: I've noticed the banks are starting to get more aggressive with their prices.
Raymond: They know when they really need to dump these properties.
Mandell: You have to consider that their holding costs are very low. They can hold these properties for a very long time.
Q: Where does the average person find listings of foreclosed properties for sale?
Raymond: There is no one place that lists everything. It is private enterprise. You have to go company to company, foreclosure site to foreclosure site. Real estate agents can usually find out more about the properties.
Q: Is it better to try to bid on a property at auction or after it is in the bank's possession?
Mandell: The property may be worth $190,000 and the opening bid is $190,000, so the only one to take the property back is the bank. There is no spread for the typical investor.
Typically, you will not have been able to preview the property prior to the sheriff's auction. After the listing period, you can view the property. Some of them are in terrible condition. They may have mold or built-in structural damage that is not apparent from the exterior. Sometimes they are heavily vandalized, but you won't know until you see it. More and more they are stealing the copper, aluminum siding, furnaces, water heaters ... they are selling these things for scrap.
Kashat: Some investors will buy the property sight-unseen and plan on doing total rehabs, but that is not the type of risk the average person should be taking on. They should wait and do a full assessment of the property.
Q: How do you get your offer accepted by the bank?
Raymond: The bank is not emotional about what it is selling. It has a price just like anything else in a store. It will typically be within 10% of their list price.
Mandell: If you really want the house, then don't play games with your offer. There is a lot of fallacy around the banks. People think the banks have to get these properties off the books and they are willing to take a loss. Banks are banks. They are in the money business. There are whole departments set up to make sure they don't lose money on these properties.
Kashat: There are a lot of things you take into consideration. The bank usually lowers the price. Offering 50% is probably not going to get you anywhere.
Q: What does it take to make money on foreclosed property?
Raymond: You've got to cherry-pick your deals. In a buyer's market all the basics apply. An investor has to think about who the end buyer is going to be.
Mandell: Buying right and knowing what to fix and when to fix it ... and having a good crew who can do that for you.
Q: What are some of the bigger risks in buying foreclosed property?
Kashat: One of the biggest risks is not having the right person advise you -- and just being aware of what you are agreeing to. Some banks pass along their closing costs to you.
Mandell: Sometimes the foreclosures are more damaged than an owner-occupied home because they have been vacated and sometimes squatters have been through them.
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