Flippers, Foreclosures and Subprime. Oh My!

Sunday’s Ann Arbor news spotlights the coming boom in foreclosures to Washtenaw County.  It was thought that Ann Arbor and the surrounding environs was a relative island amongst the pain in the housing market in SE Michigan.  However, every island, no matter how beautiful and idyllic will see some storms and this appears to be ours.

The first article in Sunday’s paper is about prospective speculators/investors snapping up properties at the courthouse steps.  If you are considering going after foreclosed properties as an investment, the article does not do enough to stress enough the need for detailed due diligence on any property that you are considering.  Truly, the purchases at the courthouse are “Buyer Beware.” 

The flip side to “Buyer Beware” on courthouse steps purchases is that those purchases are the ones that will maximize your return on investment.  When and if you find the property, and your due diligence has produced a solid return and number for purchase, when you dispose (sell) the property your returns will have been maximized much more greatly than if you had waited for the property to be listed by an agent as a foreclosure.

The other interesting anecdote popping up more frequently is hearing that the banks are purposefully under-bidding some of their defaulted properties so that they don’t buy the property back!  From the bank’s perspective, this is a great ploy.  As much as they want the balance of the loan back, they know this RE market is soggy for sellers and that if they pick up the property, they might be holding on to it for 9-18 months.  Sneaky buggers……

The Real Estate Rooster In the second article of the Ann Arbor New’s coverage of foreclosures in Washtenaw County, they give an account of a fix and flip gone bad.  Having successfully completed a couple of fix and flips in stronger markets, a retiree takes another swing at completing a flip.  He purchases the home in foreclosure at $60,000, leverages himself into some money to finish the property off “right,” puts the house on the market and is now stuck with the home and facing foreclosure on it.  Judge for yourself, here are the profile sheets of the property in foreclosure that he purchased and the property as it currently is on the market.

With investors leveraging themselves to finish properties and flip, many of those leverage tools were likely high-interest, no to low money down mortgages.  Well, I explained earlier this month how I had an “Aha!” moment with regards to subprime mortgages and Wall Street.

Certainly not a “good news” story to read on a Sunday morning over your coffee.  However, this is a good reminder to be wise about any RE investing that you might endeavor upon.  The first step in a solid real estate investment plan are easily definable goals or returns on your investments.  Second, make sure you can afford the monthly debt service and assorted costs for the current market for those defined goals. 

For inventory levels throughout Washtenaw County, please check out my quarterly inventory reports.  For a longer discussion on real estate investing, call Todd at 734.302.8852 or email me at todd-at-toddwaller[dot]com.

4 Responses to Flippers, Foreclosures and Subprime. Oh My!

  1. Hi Todd: Great Post! The A2 News Article does a good job of pointing out the potential pitfalls of a Foreclosure investment.

    At my Foreclosure Seminar yesterday, we made some of the same salient points; notably that there are good opportunities out there, but the notion of a quick ‘fix and flip’ is dangerous, given the amount of inventory on the market.

    The current Big House Data Market Reports point this out clearly. Just goes to show that more than ever, investors need to work with an Agent who knows the market.

  2. Nice article.. people need to understand that for the most part real estate is a long term investment especially in an uncertain market.. Now is the time to pick up a proerrty at a good price fix it and hold it for a better market..

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