So why have we got so many foreclosures in Central Florida?

If you have been watching the American economy since 2006 you will have noticed the downturn in the real estate industry. There are a number of contributing factors towards this downturn including the fear or speculation of American veering close to a recession and the presidential elections of 2008. The housing industry is without doubt unstable at present in the spring of 2008.

In today’s housing market there are many properties for sale by the banks, lenders or corporations who have re called the loan for a selection of reasons. The properties are then considered as foreclosures. Many investors are looking towards these types of properties as good long term investments. In order to understand if the property is a good investment or a “money pit” it is extremely important to understand why and how it has become a foreclosure in the first place and make sure you take the appropriate action with a home inspection to prevent buying someone else’s liability.

It is very clear to see that the Central Florida property market is flooded with properties for sale between $200k and $600k either through real estate companies or for sale by owners. But in recent months an ever increasing new breed of seller is appearing in many neighborhoods, they are the “foreclosure” sales. In many cases this is a forced sale driven by the Loan Company or bank that have been left with a property when the owner has failed and cannot make any further payments to secure their home.

Central Florida and in particular the greater Orlando areas have a considerable higher amount of foreclosed properties compared to other parts of the state. This is largely due to the popularity of the major attractions close by and the glut of short term rental properties available. Many investors bought into the area with the assumption that their new investment would earn them a significant return by renting it out in short term rentals. In many cases and selected areas this is still true but sadly as many owners have discovered the age old real estate term Location, Location, Location is still very true. A bad location with a vacation home can cost the owners in many cases the loss of their life savings. After the initial investment of a vacation home together with furniture package there are rolling running costs from utilities, property managers, pool cleaner, garden maintenance, and local state and tourist taxes. It is imperative that anyone wishing to venture into this area of investment has the correct real estate advise and carries out a thorough cost benefit analysis before purchasing.

In many cases buyers have been drawn into the sales pitch from many unscrupulous real estate agents stating unrealistic rental returns on the investment. After a short period the owners then try to sell their property at a loss. With the market saturated with similar properties they do not sell as quickly as the owner wishes. If the property is subject to a loan or mortgage and is running into default because of at least three missed payments the lender has the right to place the property into foreclosure. What we are finding at the moment is an increase of what is called a “Short Sale” this is where the price recovered from the sale does not cover the loaned amount. A special arrangement will have to be entered into with the lender allowing the sale and liability of the loss of funds. Many properties end up being sold in a bidding process on the court steps.

It is not just the short term rental industry that is producing higher numbers of foreclosed properties; the situation in spring of 2008 is identifying a considerable increase in homes by long term residents facing hardship. On a good note buyers and investors are finding many tenants wishing to rent long term as the aftermath of the credit crunch has indentified them as high risk for mortgages.

The Florida Association of Realtors www.floridarealtors.org is carefully watching and reporting the changes within the industry to ensure all Realtors are aware of the legal ramifications involved in marketing and selling either foreclosed or short sale properties.

Inspections

With every foreclosure unfortunately someone has become a victim of hardship and has had to pay the price of loosing their home, rental or investment. Many vacate the property with no problems but there is an increasing number who are angry with the situation they have found themselves in and turn to the property to get some sort of revenge or satisfaction resulting in damage. It has been in my experience when inspecting numerous foreclosed properties to expect the unexpected. The damaged recorded has been from minor damage to the walls to major structural damage to the roof truss system. It is extremely important when considering purchasing a foreclosed property that a full home inspection is carried out to the highest degree. The foreclosed property will be offered for sale in an “As Is” condition, this means what you see is what you get including all the hidden defects and damage. If you purchase a foreclosed property without a home inspection you will assume all the risk and liability when closing the deal.

Foreclosure properties can be sold in a variety of ways and not limited to:

• Court steps
• Newspaper small adds
• Real estate companies
• Public and private auctions
• Private sale by owner

Very often at the time of you viewing and possibly at the time of you closing on the property, the essential utilities may have been switched off because of none payment of the previous bills. This effectively means you cannot check to see if the most important features (water, electricity, A/C, plumbing, heating, appliances, pool, spa, security system, and garage door openers) work correctly. It is imperative that before you part with any money (unless you want to take the gamble) that you arrange with the appropriate authorities to have the services switched on for a minimal period for testing. When you have this arranged this is your last chance to inspect your property and determine if the services are working or if it has been a victim of malicious damage.

Malicious damage

Question: So what can you expect to find?

Answer. Anything and everything.

The prices of many foreclosed properties have been very attractive to investors hoping to buy into a long term investment and without doubt there are some great bargains to be found. Caution should be adopted when making a purchase as in many cases there has been considerable hardship with the previous owners and the reluctance to move out of their home. As I am also a Certified Home Inspector with The American Society of Home Inspectors www.ashi.org I have inspected numerous homes that have been damaged in revenge against the forced eviction. This damage can range anything from cutting of electrical cables in the attic to forced flooding. We viewing or purchasing the property make sure the utilities are turned back on for testing and if possible leave the A/C running to prevent Mold.

Summary

The number of foreclosed properties in the greater Orlando areas will continue to rise until stability in the property market is obtained. The lending laws have changed with mortgage companies having many restrictions placed on companies agreeing loans without consideration in the buyer’s ability to pay. Considerable savings can be made with purchases using hard cash and the power to negotiate the best deals. The locations and property history should be carefully investigated to ensure of the long term capital growth required when making the investment. Using an experienced and qualified realtor is essential together with a reputable home inspector.

I have worked in the industry for over 30 years and originated in the UK as a Chartered Surveyor. I moved here to Central Florida in 2002 and opened a Home Inspection company to assist buyers obtain a good investment. I later opened a Real Estate company to ensure clients where receiving the best expertise, help and service when purchasing their dream home.

I now assist many British, European and American clients find their long term financial investment property in Central Florida. I have acquired a worldwide network of referring partners from Estate Agents in the UK to financial advisors in the Middle East. To become a referring partner for any Florida locations please contact me for further details.

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