Q: How do you feel about purchasing homes that are in foreclosure and then selling them for a profit? Are there any penalties for doing this?
A: My gut feeling is that there are more books on bookstore shelves touting the millions in profits that are available from buying and flipping foreclosure properties than there are people who actually do this successfully.
Right now, the number of foreclosures in many metropolitan areas is down significantly over the past couple of years. Part of the reason is that so many people now qualify for much lower interest rates and are about to refinance their way out of a bad situation. The somewhat improving economy means more people are finding jobs to help them pay their bills, which is another reason for the falling foreclosure numbers. Many states have begun to enact anti-predatory lender laws that are helping keep homeowners out of the hands of con artists who prey on them.
And finally, lenders are working under a mandate from Fannie Mae and Freddie Mac (the secondary mortgage market leaders) to help customers stay out of foreclosure. So, lenders have been beefing up their loan mitigation departments in order to help customers work their way out of a potential foreclosure situation.
With fewer homes going into foreclosure, and many more real estate investors searching for them, the inevitable has happened: All the demand has pushed up the price of foreclosures. I think the folks getting the deals are the ones who do this professionally — and buy 60 to 200 homes each year.
But even some of these experienced foreclosure shoppers are finding slim pickings. My feeling is that if they’re having trouble finding real deals, those who are new to the business and inexperienced will have trouble as well — unless you get unbelievably lucky.
And that does happen from time to time. I recently spoke with a woman who bought an 18-acre parcel in a foreclosure situation. Within a year, the property was worth $450,000 more than she paid for it. (My advice to her was to hang onto the parcel for at least a year so she would be able to pay only long-term capital gains tax instead of income tax on her profits.)
If you’re going to get serious about buying foreclosures, I urge you to get out there and start looking carefully at these properties.
Jun 24, 2005