Vol. 5 No. 1, January 2008
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Banking on a Bargain
Foreclosures and short sales make great opportunities
The word “foreclosure” haunts every homeowner. Whether it’s the loss of a job, an escalating mortgage rate or the homeowner simply got “upside down” (owing more on a property than they make), there’s little to celebrate when reality hits and all solutions have failed.
A foreclosure occurs when a homeowner can’t make his house payments and all sales efforts have failed. The borrower comes in and puts the house on the market, sometimes at a price far below market value. A “short sale” is an aggressive marketing campaign to sell the property before it reaches the foreclosure stage.
For those who have saved wisely, are aggressive real estate investors or are simply looking for a bargain, foreclosures can represent an opportunity.
Like any real estate bargain, you have to know where to look. The lenders (banks, credit unions, mortgage companies) don’t want to be in the real estate business. They want to unload their unwanted inventory as soon as possible.
The website RealtyTrac lists foreclosures by ZIP code and stage—ranging from pre-foreclosure property to bank-owned real estate. It’s a broad and complete picture of foreclosure availability in your area.
Check the websites of local banks next, then the national chains. They often feature foreclosures on their sites.
Banks and credit unions sometimes hire agencies to help sell their properties. Check Keystone Asset Management, Lenders Asset Management Corporation and HomeEq Servicing.
Government agencies such as FHA, VA, HUD and the Department of Justice sell real estate, visible through a single portal. And government-backed Fannie Mae and Freddie Mac also operate sites. The variety of properties available is, shall we say, wide, but Fannie Mae in particular lists a lot of solid mainstream real estate values.
Making an Offer
There are three factors when deciding to make an offer for a house in the “short sale” mode or in foreclosure:
1. Learn how motivated the seller is to make a deal.
Some sellers are literally days away from bankruptcy or some other factor that will disrupt their lives. Discover, for example, if the sellers have already purchased another home. If that sale has closed, they're likely to be more willing to make a deal. If the property has been on the market for a long time, sellers will entertain any offer. Talk to the seller’s listing agent. The information he provides can include valuable clues about what kind of offers they’ll consider.
2. Make your case with hard facts.
Don’t just tell the seller what you’re willing to pay—explain how you reached that number. Mention comparable sales and the amount of inventory in the immediate area. If there are two years’ worth of inventory, properties should sell for 5 percent or 10 percent less than what houses have sold for in the past year in that neighborhood.
3. Prepare for the possibility of rejection or negotiation.
Making an aggressive offer that the seller might see as too low could backfire. He could reject the offer out of hand and walk away insulted.
Be realistic. Make an offer that can be a starting point for negotiations, so there's that potential for a counter-offer, especially if there haven’t been many other bids.
And all hope is not lost even if a seller doesn’t bite immediately. Sometimes the seller comes around and decides to negotiate, or new information—such as the sale of a comparable home at a lower price—can nudge a seller to give an aggressive offer a second look and open the negotiation process.
Foreclosures and short sales can be opportunities if you approach them in a reasonable and rational manner.
HANDYMAN TIP
Do you want to brighten a dark north-facing room with paint? Don’t play it safe with all-purpose white, which can seem grayish at different times of day. Instead, use light to mid-tones of any color, and select the satin or semi-gloss finish to help reflect existing light. You can emphasize a wall with a window by using a deeper shade of your basic hue. The color will draw your eye to the window. If you really prefer white, use a creamy shade for added warmth.
OPEN HOUSE
When Vivian Cheng and her partners bought a rambling ’30s-vintage office building on Atlantic Avenue, they considered several redevelopment options.
“From an investment standpoint, we saw a lot of potential. The building had been a department store at one point, then an office building, and finally storage for the county,” says Cheng, of NJ Estate LLC. “But when we asked ourselves what Atlantic City needs, the answer wasn’t more offices. The answer was housing.”
That was 2004. Today, the four-story property at 1625 Atlantic Avenue is one of the first modern, affordable apartment buildings in the city’s downtown, with 17 one-to-three bedroom units (there is also 6,500 square feet of retail space on the first floor).
Rents range from $995 for a small one-bedroom (a larger one-bedroom is $1,095) to $1,795 for a generous three-bedroom, two-bath apartment.
All have a bright, contemporary look, with polished-to-a-gloss hardwood floors and designer kitchens featuring black GE Hotpoint appliances, black granite countertops, brushed steel sinks and dark cherry cabinets. Cheng is pleased. “We wanted a modern look, because everything in the city is building toward that.”
From the start, the project had the enthusiastic support of Main Street Atlantic City, which underwrote some of its promotional budget. Main Street Manager Seana Grady says a successful housing venture on Atlantic Avenue could spur other investors to come in and help invigorate the area.
“One of our priorities is the creation of housing for Atlantic City’s work force,” Grady says. “From downtown, people can walk to work, they can walk to the casinos for entertainment, they can walk to the train. Also, having a strong residential base is essential to the health of any community. It puts more eyes and ears on the street to help with safety and cleanliness. And people who live here are more invested in the neighborhood.”
Grady called 1625 Atlantic “a critical project” being closely watched by others who might one day invest in the future of Atlantic City. Main Street is working toward “a vibrant, mixed-use downtown that serves the needs of the residents and is attractive to visitors.”
Right now, would-be investors are playing a waiting game. “They’re waiting to see how it works,” says Grady. “Acquisition and construction is expensive. People want to make sure they’ll see a return on their investment. But this project has the potential to serve as the tipping point to upgrade Atlantic Avenue.”
Along with CRDA and the ACSID (Atlantic City Special Improvement District), the Main Street group also endorses “adaptive reuse,” which brings new life and purpose to historic buildings like the one at 1625 Atlantic.
Cheng did not know when she bought the building that she might be a pioneer in the revitalization of downtown Atlantic City. The possibility excites her.
“Main Street and CRDA and Special Improvement can’t do it without investors. Though we’re not there yet, this is definitely an example for our neighbors and other investors. If downtown Atlantic City changes,” says Cheng, “everything changes.”
