Market Conditions: Is It a Sign of the Bottom That Investors Are Gobbling Up Chicago Area Foreclosures?
Some of you that have been trying to buy bank owned properties have said that you’ve seen an uptick in interested buyers compared with a few years ago.
The Tribune reports on the new “foreclosure gold rush.”
Pulling up to a distressed home for sale in Oak Lawn last month, Carl Courtright saw that two other potential buyers were looking at the property. He returned a while later to find a third competitor.
After getting 10 minutes to look at it himself, he saw a fourth would-be buyer waiting for his own quick showing of the home.
“There’s a ton of competition,” Courtright said later. “If you’re careful with your money, it lends itself to being a very solid opportunity.”
Home prices are falling, and homeowners are nervous. But in this one corner of the real estate market — the market for distressed properties — local and out-of-town investors are bumping into each other at the doorstep as they snap up homes for rehab, resale or, increasingly, to convert them into rental properties.
It’s a noteworthy development. Despite low mortgage rates and a variety of government-fueled incentives, the residential real estate market has been stalled for several years. A newfound interest by investors could signal that the market is at, or near, its bottom.
The trends are attracting all sorts of players. Chicagoans Dzevad and Zumreta Hadzic are on the hunt for at least two more foreclosed condos in Chicago to add to their growing base of rental properties: They have four in Chicago and five in Daytona Beach, Fla. On a recent morning, the couple set out to visit four distressed condos on the North Side that, on paper, seemed to fit their criteria as cash buyers.
At the first property, the entry key was missing from the lockbox, sometimes a sign that a realty agent is trying to save the listing for his own client. At the second condo, listed for $35,000, Dzevad liked the unit’s financials, while Zumreta noted that it was near public transportation. The unit, they quickly concluded, would need $5,000 to $7,000 of work. A garden unit in another building, also selling for near $35,000, had some water damage and a few inches of mold along a baseboard that worried Zumreta Hadzic.
At the final unit, Zumreta figured it would take $2,000 to replace the windows. Sizing up the large living room, Dzevad concluded they turn half of it into a third bedroom and charge more rent.
The couple was in and out of each of the units in 10 minutes.
“There’s so much temptation out there,” said Dzevad Hadzic, a machinist. “We have to be careful not to extend ourselves. You have to be careful not to jump too far. Where else can you get 25 percent return on your investment?”
The real estate agent working with them, Laura Meier of @properties, said not every potential client is as savvy and patient as the Hadzics.
“It’s one of those markets where it’s still a buyer-beware market,” she said. “There are a lot of properties out there that are in trouble financially. It’s extremely important for these homeowners to do their homework before they go out.”
But the mom and pop investors aren’t just competing with other small time investors. They are also competing against big funds that are buying foreclosures by the thousands.
Waypoint Real Estate Group, an Oakland, Calif.-based company, has purchased almost 1,000 foreclosures since 2008 in California and turned them into rentals. With a substantial private equity infusion in January, Waypoint is launching an aggressive national expansion this year, and that may include Chicago.
Sergey Bitelman already has come to Chicago. The 36-year-old rents an apartment in Brooklyn and had never been to Chicago until October. Now he owns two homes in the south suburbs and receives rent checks every month.
Why the Chicago market? “There’s obviously a million homes in the five boroughs of New York City, but there haven’t been so many foreclosed homes to be able to capture below-market prices,” Bitelman said. “This is pure capital preservation.”
But is becoming a real estate mogul really that easy?
As investors watch their competition grow, they worry about the long-term supply of quality properties. They also warn newcomers that the strategy isn’t as easy to execute as it may look.
Courtright, for example, is part of two investor groups that have been purchased 25 properties with cash in the past two years. They prefer to resell the homes within 120 days once rehabbed to generate cash for additional purchases, and they’ve netted as much as $25,000 in some deals. But Courtright also acts as landlord for several properties.
“I have some wonderful renters and I love them dearly, and I have some that are a monthly headache,” Courtright said. “I’d rather deal with (flipping houses) three times a year than deal with someone who doesn’t know how to plunge a toilet.”
Is all the investor activity a sign of the bottom (as the article indicates)?
All the examples given seemed to be outside the GreenZone. Are investors as active IN the GreenZone?
Investors scouring Chicago for foreclosures [Chicago Tribune, Mary Ellen Podmolik, May 13, 2012]
