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Only Looking At Short Sales Is Short-Sighted
By marionduffy | April 24, 2008
Buyers who are looking solely at distressed properties may not be getting the “good deal” they are looking for. So many people are constantly viewing sites that post homes in foreclosure or that are bank owned thinking that this is where they will find good deals. Just because a property is a short sale, in foreclosure, or is bank owned does not mean it is a good investment. Many short sales have their short-comings. (Sorry, I couldn’t resist!)
There is so much in the media everyday about foreclosures and short sales. Banking on this and the human desire to get rich quick, “specialists” are offering subscriptions to websites and classes on “buying short sales and foreclosures”, “how to buy bank owned properties”, “how to find distressed properties”, and so on and so on. I often wonder if anyone other than those putting on the classes is making much money. It is kind of like appealing to the American desire to be thin instantly. I’m sure you’ve seen the ads. “You don’t have to diet or exercise. Eat whatever you want. Just drink this drink or take this pill and you will lose 30 pounds.” And, I love the before and after pictures. “Before” shows a guy with a huge beer belly and “after” shows a guy with abs of steel. And, of course, all this occurred within 2 weeks!
But the truth of the matter is that if you want to be thin, you need to eat a healthy diet and exercise. And, the truth of the matter in real estate is that you need to look at all factors, not just price. I am not saying don’t buy a bank owned property or foreclosure. I’m saying look at the whole picture.
One very important thing to consider when buying a distressed property is how many in the neighborhood are also distressed sales. When there are many distressed sales in a neighborhood, those distressed sales now become the comps. So, if you are looking at a bank owned property that previously sold for $500,000 and you buy it for $400,000, you are now the comp. It is unlikely you will be able to turn around and sell it tomorrow for $500,000. What may appear to be a hot deal on the surface may not really be so great when you do the homework.
Again, I’m not saying stay away from distressed sales; just know what you are doing. In many neighborhoods, especially lower priced entry level homes, just about all the listings are either short sales or bank owned. If you want to live in a specific neighborhood and plan to stay there for a while, you are buying at a great time. If your goal is to build wealth and your real estate portfolio, what a great time to do it. There is no question the market will turn around and when it does you will be happy you bought now.
The approach I suggest to my buyer clients is to first determine how much you can and want to invest in your purchase. Then look at properties that meet your criteria in that price range. Keep in mind how long you intend to keep that property and what you plan to do with it (primary residence, rental property, vacation home, retirement home). Look at location, condition, neighborhood, commute to work, etc. as well as price. The house you decide on may or may not be a distressed sale, but you can feel confident that it is the right property for your needs.
Topics: Foreclosures, Buyers, Distressed Properties, Short Sales, Bank Owned |