Home Foreclosures Spell Bargains for Intrepid Real Estate Investors

Dec. 10, 2009 — -- A surging home foreclosure rate across the U.S. means only one thing to Jeremy Burgess: financial opportunity.

Burgess is part of a growing cavalcade of intrepid real estate investors who are capitalizing on the housing meltdown. They're buying up astoundingly cheap homes in foreclosure and reselling them at a profit.

In Michigan, where Burgess has been snapping up homes for more than a year, the number of default notices, scheduled foreclosure auctions and bank repossessions remain at record numbers.

That means some homes can be bought in places like Detroit for as little as a few thousand dollars, says Burgess, 34.

"If you know where to buy and how much to pay, you can do very well," says Burgess. "I've been here long enough to know that every foreclosed property presents an opportunity."

Unlike during the housing boom, today's property flippers don't need to use bank financing to secure sales. These investors typically work in cash and need only a little local market knowledge to secure a cheap property, say experts. In the states hit hardest by foreclosure rates, such as California, Michigan and Florida, investors have infiltrated the market.

Banks and mortgage investors have 639,000 foreclosed homes for sale across the U.S., largely concentrated in Florida, California, Arizona and Nevada, according to an estimate by Barclays Capital.

"You have some depressed towns and cities where almost half of the people buying properties are investors," says Florida real estate economist Lewis Goddkin, who says flippers typically stalk public auctions of foreclosed homes where minimum bids are low.

"In places like Detroit or Miami, you could have 80 percent of homebuyers be investors," Goddkin said.

The influx of property investors comes as foreclosure numbers are easing a bit.

A report out today shows the number of homes receiving a foreclosure notice fell for the fourth consecutive month in November compared to the previous month.

The report, released by RealtyTrac, shows a nearly 8 percent decrease in the number of foreclosures from October to November.

Property Hot Spots Struggle

"November foreclosure activity was at the lowest level we've seen since February," said James J. Saccacio, RealtyTrac's chief executive officer.

"Loan modifications and other foreclosure prevention efforts, along with the recently extended and expanded homebuyer tax credit, are keeping a lid on the most visible symptoms of the nation's ailing housing market — foreclosures and home value depreciation."

Foreclosure filings, including default notices, scheduled foreclosure auctions and bank repossessions, were reported on 306,627 U.S. properties during November, RealtyTrac says.

But in a sign that the nation's housing troubles are far from over, the foreclosure rate is still up 18 percent from November 2008, the RealtyTrac report shows. Those numbers include default notices, which were up 22 percent from November 2008, and scheduled foreclosure auctions, which were up 32 percent from November 2008.

Another sobering fact: One in every 417 U.S. housing units received a foreclosure filing in November.

"A full recovery will only come when unemployment recedes to normal, healthy levels and when availability of credit reaches a more rational balance between the extremes of the past few years," adds Saccacio.

California, Florida, Illinois and Michigan are still being plagued by rampant foreclosures, with those states accounting for 52 percent of all the foreclosure notices sent in November, RealtyTrac says.

Nevada, a former epicenter of the housing boom and bust, is seeing signs of relief. The state's foreclosure activity dropped 33 pecent in November compared to October, according to the report. It's the second straight month that foreclosure activity decreased by a double-digit percentage in Nevada.

But with one in every 102 housing units receiving a foreclosure notice in Nevada, the state is still four times above the national average of one out of 417 homes.

Florida, another former property hot spot, posted the nation's second highest state foreclosure rate in November at one in every 165 housing units.

Western States Try to Recover

California posted the nation's third highest rate with one in every 180 housing units receiving a foreclosure filing in during November.

And after three straight months of decreases, Arizona foreclosure activity increased nearly 8 percent in November with the state documenting the nation's fourth highest foreclosure rate with one in every 186 housing units receiving a foreclosure filing.