First off, you need to understand if you are searching for a foreclosure property in Alberta on the MLS either to buy as a home for yourself or to flip you will most likely be disappointed with the results. By the time it has reached the MLS and has been labelled as a foreclosure, it’s typically beyond the point where you can negotiate a profitable deal and it will be priced at full pop.
People have been given the impression the foreclosures are priced much lower than other properties, can be a great deal and are a great way to get started in Real Estate. From our experience, it’s not exactly accurate. To get a better
understanding here is some information on how the foreclosure procedure works.
During a foreclosure process, the homeowners go through several stages. Initially they are behind on a payment or two whi
ch is when the foreclosure process starts. If you can somehow locate or contact people in this phase, it is an optimum time to negotiate or at least make them aware of you.
The next phase is a court appearance where the judge typically grants them several months to catch the outstanding payments back up, to sell the property or to give up. The length of time granted to the home owner is usually determined by the equity in the property. If there is significant equity, the judge is very lenient and will allow quite a bit of time as there is little risk of loss to the banks and plenty of options for the homeowner to get back on track. Typically they are given at least three months and usually six months to get on track.
The final phase is when the homeowners have been unable to get caught up and the judge is forced to put the property up for sale. This is when the property becomes listed in the local papers and on the MLS. Unfortunately, this is when the wheels fall off for an investor as the pricing is set by the judge based on a current appraisal.
So rather than purchasing a property under value, you are now looking at a property selling for its current value, which also will have extra stipulations as part of the sale. Some of these stipulations may consist of buying the property “as is” which is forcing the purchaser being asked to give up any recourse if defects are found in the property after the fact. Sometimes you are not even allowed to view the interior of these properties which turns this into a higher risk gamble, although in these cases the prices are considerably lower due to the damage, but how can you properly assess the repair costs without access?
Additionally, you are now negotiating with the courts or the bank directly, rather than a homeowner, so it all comes down to dollars and cents and who offers the best price. Also if it is a court sale through the paper, you must submit your bid with a certified check or bankdraft for 10% of the purchase price and wait for a month or longer to find out if you won (and sometimes when you win you still lose!) or just to get your money back.
So while there is money to be made in properties going into foreclosure, the secret is to get to them while the homeowner still has control. If you see someone advertising access to foreclosed properties, make sure they are not just grabbing the latest foreclosures from the MLS as this is not the best strategy to make money in Real Estate!
I was speaking with a client yesterday and our conversation mirrored your post exactly Bill. Pre-foreclosures are where you will make money when looking for a good wholesale opportunity. That being said pre-foreclosures have their own set of problems such as finding the absentee owners, mortgage fraud (is the “owner” a real person or not?) and the victims who think the whole world is against them and don’t recognize help when it’s standing at their door with a cheque in hand.
Media and gurus make foreclosures sound simple and easy because they are selling TV shows, or How To courses. Pre-foreclosures can be profitable but they sound a lot sexier than they really are…ask anyone who is successfully using that business model.
Pre-foreclosures definitely have their challenges as well, the positive though is if you track down the owner and can deal with them and properly explain their options it can create a win/win scenario. You get to leverage your knowledge to create profit for yourself along with any investors while at the same time putting someone else back on their feet without the dreaded foreclosure or bankruptcy stigma on their credit.