Foreclosure investing: what you should know!

Canada is experiencing significant increases in foreclosure. Many seasoned investors are spending much time and resources to identify "distressed" (read: foreclosed) properties, in an effort to acquire them at significantly below market value.

Upon acquisition he investor can improve the property and sell at a higher price or simply keep it as a rental property.

What is a foreclosure?

Many have heard the term foreclosure in their life, but few understand what it means.

Practically speaking, foreclosure is the legal process of transferring property ownership from the borrower to the lender.

Why is a property foreclosed upon?

Normally, foreclosure is caused due to non-payment of a mortgage. This can happen for a number of reasons including loss of job, divorce, disability or other even death.

Other reasons causing foreclosure is one that is more common in today's climate: lenders failing to renew mortgages. Yes, it is true.

For years many have treated a mortgage renewal as a simple signature on a renewal notice sent to you in the mail.

In the last 12 months however, some lenders are no longer renewing mortgages either because the lender is out of business or because they no longer offer the mortgage product, such as a revenue property mortgage.

As the borrower, you may have made all your payments on time, however upon renewal date, the lender has the right not to renew, despite your good payment history.

If you cannot find a replacement lender within a reasonable amount of time, (sometimes up to 90 days) the existing lender will initiate foreclosure.

Why do savvy investors seek foreclosures?

Experienced investors seek foreclosures because they know that the court system uses a valuation system for properties that are in foreclosure usually at a far lower amount than market value.

The value they use is called "forced sale, cash value."

The general idea of "forced sale, cash value" is to determine what a person would pay for the property, if it were to be purchased using all cash, not bank financing.

Like in many things in life, a buyer usually gets a good deal if they pay for something with all cash, instead of credit.

You may normally experience this type of pricing in garage sales, flea markets or shopping bazaars.

It may be hard to believe, but this same concept applies in the foreclosure system.

During the foreclosure process, the courts order an appraisal on the subject property in order to determine both the market value and the forced sale, cash value.

In general terms, if the borrower's mortgage is worth more than the forced sale, cash value then most likely the borrower will end up losing the house to the lender.

If the forced sale value is higher than the mortgage amount owing, then the borrower will be given time to either refinance or sell the house, before the lender is given a chance to take it over.

The savvy investors seek those properties where the mortgage amount owing is far less than the forced sale, cash value so they can negotiate a purchase from the current homeowner at a value that is both low enough to generate a high margin and that will be enough to pay out the lenders on title.

Why do people who are in foreclosure sell their houses to investors at a value far less than what the market will offer?

Many times homeowners who are in foreclosure simply do not want the stress.

In other cases, it may be cheaper to sell the house fast, rather than incur legal fees that can average over $7,000 just for the lender's lawyers-#8212;not including the borrower's lawyers, court costs, court appointed REALTOR® costs, bank late interest, fees, other charges and arrears payments.

Example of a foreclosure purchase:

For example, let's say a property has a market value of $425,000, based upon comparable sales in a neighborhood.

The property is in foreclosure, so the court appointed appraisal firm determines a forced sale, cash value of $360,000.

Additionally, let's say the owner of the property owes the lender a mortgage amount of $280,000.

In this example, we have "market equity" of $145,000 and "hard equity" of $80,000.

Despite the equity in the property, the homeowner may be happy just to have another person write them a check for $50,000 above the amount owed to the lender and walk away from the headache.

Of course, the investor does not get the instant $95,000 equity for free, they must also have enough money or financial strength to either payout the existing mortgages or bring the arrears payment up-to-date and convince the lender to let them take over the payments.

Now the new owner can fix the house up, or better yet, if the house is already in great shape, just clean it and list it for sale.

If the investor is not interest in making a fast dollar, but would like to make more profit, over the longer term, then they may simply keep it as a rental and sell it in years to come.

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Tags: Foreclosure
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May 29th, 2009 by Julie Vesuwalla
Real estate market recovering

Recent reports of the economy possibly starting to recover by the end of the year, as given by the Federal Reserve in the U.S. and the Bank of Canada, mean now is the perfect time to buy a home.

Taking advantage of the market sooner, rather than later, could save you thousands of dollars on the price of a home.

The latest statistics from the Calgary Real Estate Board show the average house price increased by 1% in March, and as well, sales are on the rise.

It seems everyone is feeling a little more optimistic, and what better way to do that than to make the best investment possible: buying a home!

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May 7th, 2009 by Julie Vesuwalla
Downtown Condo with a View

Welcome to your bright & clean 1 bedroom apartment located on the 14th floor of Discovery Point. This open concept unit offers a spacious kitchen with maple cabinetry and large breakfast bar. The spacious living room leads out to the private balcony which offers city/river views with enough space for a table and a BBQ with gas hook-up. The master bedroom has a double sided walk-through closet with a cheater door to the bright 4 piece bathroom. This unit also offers 1 titled underground parking stall and in-suite laundry. Discovery Point is well situated in the West area of Downtown with easy access to the C-Train, bike, walking paths, restaurants and shopping. Enjoy the benefits of a part-time concierge service, fitness room, games / party room and a sauna.

For more information or to book a showing call the Home Sweet Home Team at 403-524-6926

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May 7th, 2009 by Julie Vesuwalla
Market gets spring boost

MLS® sales activity of single family Calgary metro homes was 1,290 in the month of April 2009, showing an increase of 19% from 1,086 sales in March 2009, according to figures released by the Calgary Real Estate Board (CREB®).

This was a decrease of 5% from April 2008, when single family home sales were 1,363.

The number of condominium sales for the month of April 2009 was 579, an increase of 30% from the 446 condominium transactions recorded in March 2009, and a decrease of 0.3% from April 2008, when 581 condominiums changed hands.

"Spring is giving new life to the residential real estate market," said Calgary Real Estate Board President, Bonnie Wegerich. "Affordable pricing and low interest rates are drawing buyers back to the market."

She added that particularly, we are finding more and more first time homebuyers taking advantage of great inventory and very low interest rates.

"We expect spring sales activity will also get a boost from the federal government incentives announced in the last budget, including the increase in the maximum withdrawal allowed under the Home Buyers' Plan and the First Time Buyer Tax Credit," added Wegerich.

The average price of a single family Calgary metro home in April 2009 was $426,311, showing an increase of 1% from March 2009, when the average price was $420,354, and showing a decrease of 10% from April 2008, when the average price was $474,564.

The average price of a Calgary metro condominium was $277,953, showing a 2% decrease from March 2009, when the average price was $284,056, and a decrease of 11% over last year, when the average price was $312,586.

Average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighbourhoods, or account for price differentials between geographical areas.

"The average price for home sales remains below levels reached one year earlier, but year-over-year declines are contracting," said Wegerich. "Our inventory also continued to decrease in April, which is helping to firm up the balance of supply and demand," added Wegerich.

Single family Calgary metro new listings added for the month of April totaled 2,010, down just 1% from the 2,023 new listings added in March 2009, and showing a decrease of 40% from April 2008, when 3,377 new listings came to the market.

Calgary metro condominium new listings added in April 2009 were 967, up 7% from March 2009, when the MLS® saw 903 condo listings coming to the market. This is a decrease of 35 per cent from April 2008, when condominium listings were 1,493.

The median price of a single family Calgary metro home in April 2009 was $380,000, showing an increase of 1% from March 2009, when the median price was 375,000, and down 10% from April 2008, when the median price was $420,000.

The median price of a condominium in April 2009 was $251,000, down 3% from March 2009, when the median was $260,000, and down 13% from April 2008, when the median price was $290,000.

All Calgary metro MLS® statistics include properties listed and sold only within Calgary's city limits.

The median price is the price that is midway between the least expensive and most expensive home sold in an area during a given period of time.

During that time, half the buyers bought homes that cost more than the median price and half bought homes for less than the median price.

"Undoubtedly this market has been challenging for both buyers and sellers, but the improvement in recent months is an encouraging sign," said Wegerich. "There's more confidence in the housing market today than at the end of 2008. Prices are stabilizing, inventory is declining and the number of new listings is leveling-these are all signs that a balanced market is on the horizon.

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May 7th, 2009 by Julie Vesuwalla
6 Mathematical Reasons Support Buying Your Home Soon

1. Rates are the lowest that they have been for 70 years.With the Bank of Canada's decision to lower Prime a quarter per cent from 2.50% to 2.25% and its commitment to not change rates for another year, Canadians are expected to continue to take advantage of a record-low prime rates, which are 2.25% at most financial institutions. 3.80% for a 5 year fixed or 3.00% variable(Prime +.75%) are the lowest rates have been since WWII. Rates are this low due to the housing problems started in the USA. Canada followed the American lead lowering rates step for step and now is the best time to take advantage of the situation. In fact, most people with mortgages at 5% or more, who are in year 3, 4 or 5 of a 5 year term, should be better off with renegotiating their mortgage rates.

2.Prices are the lowest that they have been for 3 years .The recent price declines have seen condos that were selling at $260,000 in 2007 now selling for $199,000. The average home price in July, 2007 was $473,000 and is now $403,000 - $70,000 less. These are considered short term price reductions due to the overbuilding in the last boom produced.

Fourth quarter 2008 research by RBC, which measured the proportion of pre-tax household income needed to own a home, found that affordability improved across Canada up to 3.5%. This is due in part to rising family income, as well as lower lending rates. For example, the Bank of Canada has further reduced the overnight rate to 0.25%, from 4.5% in about a year

3 & 4. Interest rates & home prices are expected to increase due to inflation. The US has stated that they are ready to print up to $5 trillion in new funds to support their stimulus spending package, bailouts of the banks, fighting 2 wars and continue to pay their debts, including Medicaid and Medicare, which are $2 trillion underfunded today.

Printing the extra money to pay for it all (the largest increase in national debt since WWII) will increase the money supply by 40% - 50%. That means for every $5 in people's pockets there will be an extra $2. That extra $2 causes more money to chase the same amount of goods when the recession is over and people start to spend again. Prices then increase
because the supply of goods has remained the same, but demand for those goods has increased and those extra dollars in people's wallets cause the price to be bid up.

Real Estate is a built-in hedge against inflationThe best way to slow inflation is to raise interest rates so interest rates are expected to go up quickly when the recession is seen to be over by the governments. Raising inflation means that your house will also be going up at the same rate as inflation rises.

Let's say you put down 5% on a house for $400,000. If inflation then goes up to 10% in one year then your house should go up at the same rate, or 10%. Your house is now worth $440,000 and all the other homes would have gone up the same amount as well. Your $20,000 down payment has now made $40,000. This is called leverage and is a great way for most people stay "even with inflation." If you decided to keep that $20,000 as cash, it would now really be worth only $18,000 after inflation is taken into account ($20,000 - 10%= $18,000).

5. Buying can cost less than renting because rent is "sticky". Wages and rents are ‘sticky.' They go up fast but come down slowly as no one wants their wages or rental income to be reduced. A rental house recently purchased with 15% down for $400,000 at 6.5% interest would need to have a rent of about $1500 a month to break even. Most investors would not want to take a loss and would set the rent the same as the mortgage payment. Average rents would then tend to even out at the same $1500 a month.

Cheaper to buy then rent Because house prices are already down 15% - 20% and mortgage interest rates are less than 4% for a 5 year term, that same $400,000 house can now be purchased for $320,000 with 5% down and payments will now be about $1,340 a month plus property tax of $125 = $1,465 a month. It is now cheaper to buy than rent! Generally, the gap between renting and buying is close to the smallest it has ever been for the last 4 years. Rents are expected to stay the same or increase with the expected inflation. If they increase the same stickiness will keep them where they are even when inflation subsides. This makes buying an even better bet as you are paying your own mortgage, not someone else's.

6. Alberta & Canada Economies Are Still Strong. • Canada is predicted by the International Monetary Fund - IMF - to be one of the first G20 countries
to emerge from the world wide down turn. Our energy and natural resources are the raw materials used for the world's production and demand for them will kick start our economy first.

• Since October 2008, Canadian job quality has basically held steady according to CIBC's Employment Quality Index (EQI). The bank's EQI ranks job quality by assessing a number of factors including the distribution of part-time vs. full-time jobs; self-employment vs. paid employment; and the compensation ranking of full-time paid employment in more than 100 industry groups.

"The relative stability of our employment quality index suggests that when the labour market turns a corner, job gains will translate into income gains much more quickly than they have in the past, as the base of the existing labour pool is of a higher quality when compared to previous recessions."

Tags: Buyers Market, First Time Home Buyers, Resale
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May 7th, 2009 by Julie Vesuwalla
Canadian home buyer is Younger

The percentage of home buyers between the ages of 18 to 34 has more than tripled since the year 2000, according to the results of a CIBC mortgage poll conducted by Decima Research. This age group represented just 10% of homebuyers a decade ago, but the survey says they made up 36% of home buyers in the past four years.

More young people are getting into the housing market because financing is much more affordable, said Paul Mims, Vice President, CIBC Mortgages and Lending. Home ownership has become a reality for many 18 to 34 year olds because their mortgage payment can often be the same amount as their rent.

The average age of a Canadian homeowner has fallen from just over 48 years old in the 1990s to 41 years old since 2000. Regionally, younger buyers have increased the most in Manitoba and Quebec, while the percentage of younger buyers has increased only 2% in Atlantic Canada.

In comparing homeowners who purchased since 2000 with those who bought their home in the previous decade, the average mortgage size has risen 26% to $120,000, from $95,000 in the 1990s, likely reflecting the rise in home prices during that time period. Home buyers in Alberta carry, on average, the largest mortgage at $170,000.

The poll results also show that condominium purchases have nearly doubled since the 1990s, representing 11% of home purchases in the past four years, compared to 6% in the previous decade. Meanwhile, the percentage of single-family detached homes among home purchases fell, accounting for 66% of home purchases since 2000, compared to 74% in the 1990s.

-Article provided by the Canadian Real Estate Association (CREA)

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April 17th, 2009 by Julie Vesuwalla
Ranchlands Meadows $249,900

Beautiful spacious condo located in Ranchlands Meadows (Largest Floor Plan). The main floor offers a large Kitchen/Dining room with upgraded laminate flooring and ceramic tile. The sunken living room offers a great area for relaxing with patio doors which lead out to a newly landscaped patio/bbq area. The main floor also offers a spacious bedroom/office and 2 piece bathroom. The upstairs offers 2 more bedrooms and a 4 piece bathroom. The partially finished basement offers 2 large windows and is unspoiled for future development. This unit has been recently painted and has upgraded light fixtures, new carpets, baseboards & newer appliances. This condo is situated in an excellent location close to all amenities. OPEN HOUSE SUNDAY APRIL 19, 2:00-5:00. img_06843

For more information about this new listing please contact the Home Sweet Home Team.

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April 17th, 2009 by Julie Vesuwalla
Market shaking off winter blues

MLS® sales activity of single family Calgary metro homes was 1,086 in the month of March 2009 showing an increase of 32% from 825 sales in February 2009, according to figures released by the Calgary Real Estate Board (CREB®).

This was a decrease of 23% from March 2008 when single family home sales were 1,418.

The number of condominium sales for the month of March 2009 was 446, an increase of 30% from the 343 condominium transactions recorded in February 2009 and a decrease of 21% from March 2008 when 565 condominiums changed hands.

"The Calgary market is slowly shaking off its winter blues," said Calgary Real Estate Board President Bonnie Wegerich.

"Spring has brought a nice uptick in sales this month and the supply of homes has been trending lower. It is also the first time that the year-over-year decline in average price has started to decelerate-a sign that we are moving into a more balanced market."

The president of the Calgary Real Estate Board said sales typically pick up after January and gradually increase until June and the start of the summer holiday season.

"As we enter the spring market sellers seem to be serious about pricing their homes competitively," added Wegerich. "Record low mortgage rates and affordable prices also help explain the increase in sales."

The average price of a single family Calgary metro home in March 2009 was $420,354, showing an increase of just over 1% from February 2009, when the average price was $415,568 and showing a decrease of 11% from March 2008 when the average price was $474,513.

The average price of a Calgary metro condominium was $284,056, showing a 6% increase from February 2009 when the average price was $268,971 and showing a decrease of 9% over last year, when the average price was $312,620.

Average price information can be useful in establishing trends over time, but does not indicate actual prices in centres comprised of widely divergent neighbourhoods or account for price differentials between geographical areas.

"Buyers will continue to have choice and affordability in this market," said Wegerich. "Competitive pricing will remain a reality of this market, but I think pricing is now showing some signs of stability," added Wegerich.

Single family Calgary metro new listings added for the month of March totaled 2,023, down just 2% from the 2,057 new listings added in February 2009 and showing a decrease of 42% from March 2008, when new listings coming to the market were 3,493.

Calgary metro condominium new listings added in March 2009 were 903, up 1% from February 2009 when the MLS® saw 892 condo listings coming to the market. This is a decrease of 42% from March 2008 when condominium listings were 1,561.

"It is very encouraging to see the return of a more balanced market. Our inventory has come down dramatically-more than 20% from the same time last year. If sales continue at current levels we are looking at about a four months supply of single family homes currently on the resale market," noted Wegerich.

The median price of a single family Calgary metro home in March 2009 was $375,000, showing no change from February 2009, and down 11% from March 2008 when the median price was $420,000.

The median price of a condominium in March 2009 was $260,000 up 4% from February when the median was $249,900 and down 11% from March 2008 when the median price was $293,000.

All Calgary metro MLS® statistics include properties listed and sold only within Calgary's city limits.

The median price is the price that is midway between the least expensive and most expensive home sold in an area during a given period of time.

During that time, half the buyers bought homes that cost more than the median price and half bought homes for less than the median price.

"Undoubtedly job insecurity might keep some potential homebuyers on the fence. But we should keep in mind that nearly 96% of Calgarians are still working-one of the lowest jobless rates in Canada. Those who are confident in their job security can benefit from great affordability and record low mortgage rates," said Wegerich.

For More Information please Contact the Home Sweet Home Team,sold-sign

 

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Jeffrey LeBlanc

Jeffrey LeBlanc

REALTORĀ®
CENTURY 21 Bamber Realty Ltd.
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