Though investing in foreclosure properties can be a risky venture, seasoned investors with solid financial backing can do quite well in the foreclosure investment market. Here are just a few success stories from the frontlines of foreclosure investing:
Anne Pratt bought a foreclosure with her husband, a contractor. This allowed her to save on renovation costs. After putting in a new kitchen, a mudroom, a half bath, and making a few other improvements, the property she bought for $105,000, which she invested an additional $50,000 in, sold for $230,000.
Richard Perry from Franklin, KY, has bought two pre-foreclosure properties. The first, a two-story, federal-style home, had an asking price of $82,000 for a two-story, federal-style home. Sensing the buyer was motivated, Perry made a low-ball offer of $39,000. The homeowner countered at $49,000, and both parties eventually agreed to $42,000. After repairing the siding, central heat and air, and some landscaping, an agent found a buyer at $81,900. Perry netted a profit of $21,000 after the expense of repairs and commissions.
The second pre-foreclosure purchase came from a friend, whose aunt was selling a brick ranch on a quiet street with a nice yard. After researching the area, Perry discovered that properties on the street were selling at around $70,000. Again, Perry submitted a low-ball offer of $36,000, anticipating $15,000 in repairs. Luckily, the owner accepted. Before beginning repairs, Perry contacted an agent who offered $46,000, netting Perry a $10,000 profit with zero effort.
Cooper Square Acquisitions
Cooper Square Acquisitions, a real estate investment firm focused exclusively on distressed pre- and post-foreclosure properties in Southern New Jersey, has seen great success from its foreclosure investment strategy despite the inherent risks involved. They are specialized in purchasing properties sight unseen on REO auction websites like Auction.com, Hubzu.com, Hudsonandmarshall.com, among others, which are price accordingly for the risk of buying sight unseen, which yields a wide profit margin between the ARV (After Repair Value) – often 30 to 60% – and the auction sale price.
The Cooper Square Acquisitions strategy mitigates the risk of purchasing properties site unseen by focusing on units in condo communities, which tend to be newer and require less repairs than stand alone homes. Also, the HOA (Homeowners Association) is generally responsible for maintaining the exterior and structural elements, such as the roof, facade, electrical and other big ticket items, which elevates the market value of these properties. By purchasing condo units site unseen, they are able to take advantage of favorable pricing discounts, knowing that the repairs required are minimal since all big ticket items are usually covered by the HOA. Extensive research is necessary to ensure the HOA covers structural elements and is financially sound.
ProfitShare, a company in Boise, ID, owned by Brian Peavey, partners with private lenders in order to close avoid the lengthy bank financing process and close quickly on foreclosure properties.
ProfitShare uses direct mail, door hangers, social media, real estate agents and networking to locate foreclosure properties in Boise, Idaho. To incentivize sellers, the company promises an additional payment after the property is flipped has sold. The company also has a backup offer in place in case the first offer falls through.
“When I started my home flipping / real estate company, ProfitShare, I had to find a way to weave ethics into the very core of the business. While the traditional model of house flipping often preys on people in financial crisis and frequently takes advantage of the original homeowner, I found a way to partner with these homeowners and include them in the success of the deal,” Peavey says.
Strong Blocks, a rent-to-own company in Milwaukee, WI, owned by Carl Quindel, recently purchased 25 tax-foreclosed homes in for $1, which they will renovate for future rent-to-own families. After a family has selected a home, the company will put together a lease and a right-to-purchase agreement, which secures the renters option to buy the property for a specified price during an established period of time.
Quindel, who was the executive director of ACTS Housing, a real estate brokerage firm that helped low-income families purchase homes, realized residents needed more options to purchase a home. ACTS, which worked with 2,000 people a year, was only able to provide housing for 100 to 150 families. Most had bad credit ratings, which negatively impacted their ability to buy a home.
“250 families a year could benefit from six to 18 months to work on their credit to get a mortgage from the banks,” Quindel says.
Through StrongBlocks, tenants can purchase the home they are renting by either putting down a lump sum of cash or using part of their rent for an eventual down payment on the property.
New Jersey Realtors
New Jersey Realtors, an advocacy group for the real estate industry and private property owners, provides consumers with to buy and sell property. The group has published a report that reveals that in 2018 properties remained on the market for an average of 72 days, down from 86 days for the same month in 2017 and 94 days in January 2016. Meanwhile, the average flip grossed returns of 50% in 2017, compared to 28% in 2006.
New Jersey, which leads the nation in foreclosures with approximately 1.61 percent of the state’s homes in foreclosure in 2017, according to ATTOM Data Solutions, a real estate data firm, has seen a growing number of investors looking to purchase property to convert into rentals.
Christian Schlueter, president of the New Jersey REALTORS, says, “There’s a lot of experienced investors who are buying [bank-owned homes] and some new people are buying them believing they are going to be investors.”