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Chris Parrish |
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| Real Idaho, LLC RE/MAX West, 12501 W Explorer Dr, Suite 100, Boise, ID 83713 Website: www.RealIdaho.com Email: [email protected] |
Deals through Distress
OK, let’s start with an obvious statement: Great real estate deals can be found in distressed properties.
Seems like a no-brainer doesn’t it? If the seller has some sort of need to sell, or there is an issue with the property, then you stand to gain as the buyer.
Deals Everywhere
In the Treasure Valley (Boise Valley) right now 55% of the homes for sale are related to foreclosure. These are either Short Sales (sales negotiated with the bank to avoid foreclosure) or REO (owned by the bank after foreclosure). That’s a lot of distress.
But what’s really important to know is that 67% of homes being sold are foreclosure related. Why? Because that’s where the best deals are.
How to Find Distressed Properties the Right Way
So right now the quickest way to a deal in Idaho is through a Short Sale or REO property. And here are some practical tips to make the most of these:
1. Short Sales are a lot of work – This is not specific to Idaho but it’s an important point. Banks are getting better at short sales but it’s still common to write an offer and wait 2-3 months just to get an answer.
Also, locally we can still find agents here listing homes for below market value – at prices the bank won’t accept. So do your homework up front on price or you could end up waiting multiple months only to be handed a shockingly high counter offer from a bank.
Now don’t let this scare you off. If you’re looking for a deal in Idaho, Short Sales can lead to some great ones. But go in with your eyes wide open.
2. Use Short Sales as a stepping stone – Idaho has a Real Estate Addendum typically included in Short Sale offers (many brokers require it). Besides informing all parties how Short Sales work, it also gives the buyer the right to back out until the Bank accepts their offer.
Since Short Sales can be a bit of a risk, use this to your advantage. Have an offer at a price you like, sitting on a Short Sale home while you keep looking for your deal elsewhere.
3. Keep an eye on Short Sales that are “taken†– In our market it is also customary for Sellers to submit only one offer to the bank. So if you want to buy a Short Sale, agents will usually put you in back-up position or not even accept further offers.
But remember point #2: buyers can back out easily – and they do. Be quick to submit an offer if this happens on a home you like because having first offer that the Seller accepts – even if it’s lower than offers that come later – puts you in an exclusive position to negotiate with the bank.
First place wins so be ready.
4. Don’t lose hope if the Short Sale falls through – Nationally, banks want to shift more of their sales towards Short Sales (away from foreclosures) But here locally, there are still a decent percentage of homes that are unsuccessfully negotiated as Short Sales.
Patience is an important skill in finding deals. I’ve had buyers let a Short Sale go only to pick it up on the flip side as an REO once the bank took it back.
5. Be patient with REO’s to get your price – Again we come to a point that isn’t limited to Idaho but still critical. If you’re wanting to buy an REO property (where the bank now owns it), don’t waste time with low-ball offers. In most cases the asset managers at these banks only have the authority to accept about 4% (in some cases 6%) below asking.
But, what they will do is drop the price for you like clockwork every 20 or 30 days. So be ready to nab it as soon as it drops – before other buyers have time to find out about it, tour it, and write their offers.
6. But also be ready to act quickly with REO’s – On some of our local properties banks list below market. But don’t confuse a slow market with a dead one. In Idaho, there are plenty of buyers right now and if the deal is good, they will jump on those homes.
Be ready to act quickly and if the deal makes sense, even be ready to offer more than asking if there’s competition. I’ve had numerous buyers get excellent deals above asking price because the asking price was ridiculously low.
The Return of The Investor
It’s often been said that if you want to make money, figure out what the masses are doing and do the opposite. In the frenzied real estate boom, investors flocked to the Boise area hoping to cash in on our growth. Many of them aren’t feeling so good right now.
But for the savvy investor, our current real estate downturn is great news. Prices are low, rents are high, and money is easy to come by.
A Little History
In the summer of 2005 Boise, Idaho was “discovered†nationally. Now, there had always been a steady influx of people into the Treasure Valley – those who knew of our secret. But when magazines started releasing articles ranking Boise as one of the top places to live and do business, the floodgates opened and the real estate bubble was introduced to Idaho.
Overnight, investing in Boise real estate seemed to become fashionable. In 2005 alone, homes appreciated nearly 30% and the climb continued even into 2007 – well after most of the nation’s home prices had been in decline.
What was so surprising, was the lack of business sense on the part of these investors. Many of them seemed new to real estate – fresh out of some seminar, pumped up with hype, and looking for a quick buck. No one was analyzing cash flow, or concerned with sound fundamentals. Only property values mattered. Speculation ruled the world.
Pop!
Fast forward to 2011. The bubble is no more. Today, Ada County’s median home price is a mere 51.6% of it’s 2007 peak. Nearly half of all closings are distressed properties and terms like “Short Sale†and “REO†are now familiar to the public. And the speculators who built their investments on the sand of rising property values are singing the blues. But within this overcast outlook, there is a platinum lining.
Opportunity Abounds
The most obvious opportunity comes with the great real estate prices. What’s bad news for sellers is terrific news for buyers – and also for the investor adding to (or starting) their inventory.
The second big advantage is interest rates. In writing this article I had a local lender quote me an investor rate of 5.375% fixed, with only 25% down. That’s ridiculously good! Even if rates climb, we’re still looking at blue skies for investors!
And of course all the things that people love about Idaho are still in play. But what makes Boise especially attractive right now is the tenant demographic. Which brings us to vacancy rate.
In a neutral market, vacancy rates – the percentage of rental properties not rented – is ideally about 10%. Today, in Ada county the vacancy rate is 1-2%. That’s strongly in favor of investors, and this trend should continue for some time because:
• There are fewer competing rental properties than there used to be. Many amateur investors have left the market.
• Many who would like to buy cannot. Loans for risky buyers are long gone and foreclosures and short sales have left many home owners without the credit to buy again for the foreseeable future.
• More buyers are simply choosing not to buy. While some are just nervous about the future, others have come to realize that the notion that everyone should own a home hasn’t proven to be all that wise. After all, there’s no shame in renting and frankly, sometimes it’s the best thing.
Strong demand. Reduced supply. And a favorable outlook. Well, that’s economics 101 right there.
Taking Action
So, the obvious question is what to do next. A great start is to request an investor real estate packet. It includes info on recently closed properties, current rents and expenses, and details on our sub-markets (like the ever-popular debate between Ada and Canyon county properties). But ultimately, all this is to help you to begin identifying your investment goals.
Please feel free to contact me if you’d like help setting up an investment plan or want to learn more about the Boise area investment market. After all, it isn’t called “the Treasure Valley†for nothing.
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