It has come up in a couple of conversations with clients recently, as well as a discussion during a recent office meeting, that buyers are asking about locating homes in foreclosure in order to get a deal. It turns out that they’re not quite as easy to find as you might think.
First, one important statistic: Half of all foreclosures are occurring in six states. Those states are California, Florida, Arizona, Nevada, Michigan and Ohio. (CNN Money)
All the other foreclosures in the US are divided among the remaining 44 states.
A personal anecdote:
One of my buyers asks regularly about locating a foreclosure deal. Working at odds, however, is her desire to live in the Gold Coast.
Well, they don’t call it the Gold Coast for nothing.
Most of the condominiums we have seen are for sale by sellers making a lifestyle choice, not out of necessity. Realtors showing us their listings in the Gold Coast tell how the condo is their sellers’ second or third home; an in-town apartment or perhaps a former first home before relocating. Almost universally, though, no tales of woe or hardship. Some of these homes are also listed for rent. Some owners will simply keep the home empty or enjoy it for another Chicago Summer.
Some of our younger buyers are devotees of Robert Kiyosaki’s and Sharon Lechter’s famous book "Rich Dad, Poor Dad" which goes into great detail about finding the best investment deals. Invariably this leads to the foreclosure discussion.
Second important statistic: A foreclosed property is usually available for at least a 30% discount. Often more.
Third important statistic: There are plenty of foreclosures in Chicago. (Stats from RealtyTrac.)
The Catch: Most of our company’s clients are home buyers and are searching for a place for themselves and their family to live. Take a look at the map of where these foreclosures are taking place (Map from RealtyTrac.) The areas with the highest concentrations are the south and west sides. But the buyers don’t want to live where the foreclosures are; they are asking for traditional lakefront neighborhoods.
When confronted with these facts, some of these buyers stubbornly remain insistent. And homeless.
Another factor to take into consideration when pursuing foreclosed properties is the condition of the property. In most cases, the property is neglected. In some instances, ransacked.
The best condition I have ever seen of a foreclosed property was a condominium in an amenity high-rise in Edgewater. A small investor purchased a condominium in original condition and began renovating it in the hopes of fixing it up and selling at a profit. When the project took more time and resources than he predicted, he stopped making payments and the condo was foreclosed on. A buyer of mine who already lived in the building purchased the unit and finished the renovations.
Many foreclosed properties in Chicago are houses or small apartment buildings. If vacant, these tend to fall into dis-repair quickly. Our advice is that chasing deals on properties in distress is best left to the most experienced investors & rehabbers. A Chicago winter can be very hard on a building with no running utilities. Burst pipes, broken windows, vandalism are just some of the problems that foreclosed and neglected buildings are subject to. They’re not 30% to 50% off for no reason. Even experienced investors can be surprised by how much time and money it can take to get a property back in good condition for renting out or selling at a profit. Cost overruns, improper planning, shortages of man-power or materials, and even City bureaucracy can stymie you at an inopportune time sending your finances into peril. It’s all to easy to fall a few months behind schedule and a few thousand bucks in the hole and the property is right back in the bank’s possession again.
Check with your local expert in your marketplace during the planning stages of your new home search. Even though foreclosures are everywhere in the media, they might not be so right where you’re looking for your next property.