Forecasts of Years of Foreclosures Ahead!

When is the right time to buy? With so many people north of the 49 that have purchased property in the US, have you missed the boat? No worries, read on...

The housing market faces several more years with 800,000 to 1 million new foreclosed properties per year, according to Rick Sharga, an executive vice president with Carrington Mortgage Services.  Sharga recently left RealtyTrac, where he helped build a network that tracked foreclosure filings across the country.

Recently, analysts at Bank of America Merill Lynch estimated REO sales would peak until 2013 when nearly 1.5 million properties would be sold.  According to RealtyTrac, there have been 8.9 million homes lost to foreclosure since 2007, the height of the credit crisis.  Sharga said based on lender behavior, he doesn't see a spike happening, rather a slow, steady burn in order to spare home prices from further reductions. Today, roughly 4 million homes sell per year. If 1.5 million REO sold, that would be almost 40% of the market, which would be double the current market share of these properties.  "I think it’s less likely that we’re going to see a 'peak' year in REO sales that looks dramatically different than what we’ve been seeing over the past few years. This is partly due to relatively weak demand, partly due to what I’d call 'inventory control' being executed by the lenders and servicers, and partly due to the fact that foreclosure processing, evictions and redemption periods have all become extended, and often appear to be in a state of flux," Sharga said.

The largest delay came when servicers were found to be improperly foreclosing on homeowners last year. RealtyTrac said the delays, investigations and ongoing attorneys general settlement talks pushed more than 1 million foreclosures that were supposed to occur in 2011 to 2012.  According to Lender Processing Services, mortgages facing foreclosure are delinquent an average of 611 days. Once a foreclosure is initiated, Sharga said it can take as long as 400 days to complete. So, he said, a loan entering foreclosure in December 2011 won't hit the market as an REO until January or February 2013.  "Sales volume will be high in 2012, 2013 and probably 2014 as well," Sharga said. "But it still seems more probable that we’ll see consistently high – yet closely managed – numbers of these sales over several years than it is that we’ll see a huge spike followed by a precipitous drop."

Basically it amounts to your risk tolerance, and not over extending oneself. But I truly believe that most of us, in our lifetime, will not see another opportunity to purchase property for a fraction of even it's replacement costs. I am presently involved with putting together investors in fractional ownerships, let me know if I can help you or if you need more information.

We want to invest, where do we start? PREPARATION!!!!

Here is a bit of a breakdown based on our most recent purchase:

We decided that we wanted to purchase in the East Valley and South areas of Metro Phoenix. We felt that the general area offered lots of great amenities, parks, water areas, shopping, lower crime rates and well reported schools. It is also reasonably close to both of the international airports (Sky Harbour and Mesa), which is handy for us Canadians...not a deal breaker, just handy. We set out ten days for this visit, allowing a few hours to relax by the pool and plan our day of property searching. I am going to write this blog in several parts, let's start with the Preparation:

First off, you must define what you want to accomplish. Are you looking for your own place that you can visit or live for up to 6 months of the year? Is it a vacation rental, furnished and rentable on a weekly or monthly basis? Or, is it a longer term investment, unfurnished, and rented on a yearly lease?

Secondly, you must determine your budget and that is based much on your goals. If it is straight home ownership as a 'snowbird' then you have to set out what your needs are:
type of home (condo, townhome, house), bedrooms, pool, parking (garage, carport, open), and PRICE. If it is a rental, what are your expectations for rent. If is a vacation rental, then you have to look at the area nearby...is it close to golf courses, hiking, parks, water sports, shopping, entertainment? If it is a long term lease, then you want to find an area with good schools, safe and low crime stats, nearby basic shopping, parks, sports fields, a good income based area with good employment.

Thirdly, how are you planning on financing your investment? Many Canadians find that the easiest method is cash. Either a healthy draw from savings, rob from your kid's college fund (maybe they're not bright...sorry, just kidding!), or draw from your Line of Credit (Home Equity Line of Credit, HELOC or LOC). Just recently, since September of 2010, it has become next to impossible to find lenders in the Arizona and Nevada areas that will offer mortgages to foreign nationals. Mostly due to the fact that they can't verify Canadian credit histories very well, and with the mass of properties at all time low costs, it simply doesn't make financial sense for them to tie up their manpower to assist in a low mortgage (many of the properties are in the $70-95,000 range). They used to have a minimum of $100,000 mortgage, that was after putting 30% down, but now their appears to be mostly 'hard money loans' which I will get into a later post.

We were very fortunate that our home bank institution has branch offices in the US and we received an excellent referral to a broker in Atlanta, Georgia. We had to have at least a $50,000 mortgage, which meant that we needed to find at least a $71,000 home. Then, when you calculate your mortgage, add in your taxes, your HOA (Home Owner Association) fees, and utilities, it gives you an idea of where you should start looking. If you are going to rent the property long term, you want to research various rent expectations in the areas and the deduct approximately 8-10% for Property Management fees. By the way, you will not be able to find a Canadian based bank that will finance your purchase directly, and it is a long process to deal with the American process (remember what they've gone through, they DO NOT want a repeat, so they have many loopholes, BUT, it is a WORTHWHILE in the end!). Once you have your bank's approval, they will supply you with a document that shows that you are pre-authorized...you will require this when you present offers on REO (foreclosure or Bank Owned Properties)...it is a MUST!

Lastly, you MUST have an excellent realtor! Somebody that has experience with investment properties, is an investor themselves, and knows the hurdles that a foreign investor faces. They must have a huge knowledge of the area and know what is going to fill their client's needs based on their budget. Phoenix is the 5th largest metropolitan area in the US, and it is not unreasonable to find a realtor that has a great knowledge of the majority of the areas. We are fortunate that we have such a realtor, and being in the business myself it is easy to spot a good one!

Ok, so this may take a month or so to get in place (especially if you need a pre-authorized mortgage)... you know what you want, you know what your budget is, now we need to find that perfect investment!

Stay tuned....