Capitalizing on Record Foreclosures Waterville ME

More than 1.2 million properties had foreclosure filings in 2007, a nearly 75 percent increase from 2006 and a nearly 150 percent increase from 2005, according to a recent RealtyTrac report. The record numbers could represent a prime opportunity for foreclosure investors.

“Two years ago, talking to a seller would mean [that you would hear], ‘I don’t need an investor, I’ll just list it on the market and get full market value from a homebuyer.’ Now all of [a] sudden there’s a strong demand for investors, and sellers are much more willing to sell at a discount....There’s more value in having cash than in having a house if you’re in need of money,” Alexis McGee, president of Foreclosures.com, said.

McGee makes purchase decisions based on a profit formula. “I recommend you budget a 15 percent profit on the current resale value....You’re going to budget based on how long your hold is going to be, so that way it doesn’t come out of your profit,” she said. “I estimate my quick resale value for today’s market, and then deduct my cost to acquire, repair, hold, sell and profit. What is left is what I pay for the house. In a slow market, those deducted costs average 35 to 50 percent of the resale value.”

Repair expenses can turn profit into loss for investors in foreclosures Investors can easily underestimate their expenses when first starting out in foreclosures, and would be wise to allow a margin of error, according to McGee. “I had a deal that I thought the repairs were going to be $15,000 and it worked out to be more like $35,000, and that was a big difference,” she said. “There are a lot of clients that make a mistake and don’t have a big enough profit margin spread and end up losing money.”

Knowing where to look for foreclosures is also key to an investor’s approach.

Though most foreclosure markets are—by nature—struggling, certain areas are more ripe for investment than others. Any market that is suffering employment losses is likely better left alone, as a lack of jobs typically also means a lack of buyers.

“Even though California has depreciating values, we still have people moving in and we still have employment growth, so you know it’ll balance out. Versus Detroit , which is losing 10 percent of [its] employment. People are leaving the state because [there are] no jobs,” McGee said.

There are several different types of foreclosure purchases that investors can pursue, particularly in the today's soft market. Some possibilities include pre-foreclosures, REOs—also known as bank-owned properties—trustee sale auctions and short sales.

Investors can buy pre-foreclosures with equity before the bank takes possession of the home, effectively bailing out the homeowner before the actual foreclosure occurs. McGee recommends that investors purchasing pre-foreclosure p...

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