Treasure Hunting-Hidden Foreclosure Gems

Posted: 16 May 2008 | Categories: Investing

Treasure Hunting-Hidden Foreclosure Gems

Any investor following the real estate market in the past six months or so can tell you that the opportunities available for those interested in foreclosure investment have grown exponentially. Foreclosures are available in every size and shape at almost any imaginable price point. While existing single family homes, condominiums, town homes, and multi-family complexes remain popular foreclosure investments, there is another lucrative foreclosure area perking the interest of those involved in buying foreclosures – newly built homes and construction loans on recently completed but not occupied homes.

A record number of newly built homes and construction loans held by builders are entering foreclosure every month. According to data from the Federal Deposit Insurance Corp. (FDIC), more than 3 percent of all residential and commercial construction loans were classified as non-performing or having borrowers behind on their payments in December 2007. It may not seem like much, but it is in fact the highest proportion noted in over a decade.

Sprinkled across the country are literally neighborhoods of newly built homes in which a large percentage remain either unoccupied and/or abandoned. Builders previously caught up in the booming real estate market find themselves now sitting on homes that buyers either walked away from or could no longer afford in this slowing economy. Roughly a dozen publicly-traded builders, who decided to dabble in the mortgage lending business in hopes of boosting sales to potential buyers today find themselves holding the bag so to speak. They are not the only ones. Smaller community banks who extended (and possibly overreached) on construction loans to builders are now in possession of a large number of foreclosed homes, wondering how they will be able to sell them in order to recoup some of their losses.

The answer for builders and community banks sitting on a large number of foreclosed properties may be the savvy real estate investor. Unfortunately, as an investor you may have your work cut out for you because finding these opportunities is not always easy. Why? Because these types of proprieties rarely appear on national lists identified as foreclosure properties. Furthermore, real estate agents, banks and builders tend to steer clear of referring to these properties as foreclosed home. Therefore, you will have to do a little digging to unearth these gems.

Drive through newly built neighborhoods to get a feel for what is available. Call local builders regarding any houses that appear to remain empty, but are not sporting a for sale sign. Speak with the lending agents at small community banks and ask them for their REO list. Often, new homes or “spec homes” (homes not pre-sold but built “speculatively”) will make those lists. If the banks have too few foreclosures, they may not have an REO list and use a real estate agent instead to dispose of their foreclosures. Be sure to find out who that person is and contact them directly.

Another advantage of approaching builders and small community banks directly and forming some type of relationship is that you may be able to discover information regarding homes prior to entering the foreclosure process. Let your contacts know what type of home and area that you are interested in and check back with them on a regular basis. You may be able to garner information on homes that fit your criteria prior to those properties being added to any public foreclosure database.

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Demand and bidding is always high for newly built homes in foreclosure. This is due in large part to the popularity of newly built homes among home buyers. Find the right foreclosure home in the right location at the right discounted price and you have the makings for a profitable investment regardless of current market conditions.

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