When Foreclosure Hurts

by Mike Yeo on February 2, 2011

Several years ago when the real estate investment hype was going strong, Collin County (Texas) realtors cashed in on selling real estate as investment properties. Some went to California, bought large billboard signs and phone calls/ “investors” came in by the hundreds, if not thousands. They conducted seminars about the real estate investment opportunities in this area. Many of them cashed in on their Californian home equities to purchase these properties. Business was hustling and bustling. Life was good.

Fast forward to current date, these properties continue to sit on the market VACANT. Ouch (not a pretty word for the investors).

Why????

You see, these California investors purchased properties by the dozens. Many of them bought existing homes and many more bought new properties. When you purchase 3-5 properties at one time, you betcha the Home Builders would cut you a pretty good deal on the houses. These are very large houses too (by that I mean 3,000-4,000 square foot homes). Corresponding to that, large homes tend to come with large rents.

If you knew the Texas (or specifically Dallas) real estate market, you would know that generally, most renters do not rent huge McMansions and pay over $2500 – $3500 homes no matter how new they are. So, these homes become very difficult to lease and obviously sat on the market for over a year EMPTY. Ouch. So, these investors have to resort to selling them (at a very huge lost) or many of them have been foreclosed upon.

Just to quote a specific example: Panther Creek Estates in North Frisco has too many houses such as this. Back in 2004-2005, you could purchase a home for something close to $200,000 (and by that I mean, single-story starter homes). Fast forward 3 years later, you can now buy 4,000 square-feet homes for around $200,000. And these are available by the dozens. Quite a few for you to pick from.

Foreclosure hurts everyone. Not just these investors. It hurts the Sellers who are NOT in foreclosures, trying to sell their homes for whatever their reason. Granted, these non-foreclosure houses are alot better quality and have many finishing touches in them, these Sellers cannot justify a $50-$100K more in price no matter what you have in the house! Sellers who are not realistic with their expectations continue to sit on the market, awaiting this One-Special Buyer who thinks that their house is worth that much more.

This scenerio continues to grow all over the Dallas area real estate market. When investors are foreclosing by the hundreds, it hurts everyone. Buyers will seize the opportunity to purchase.

Lesson learnt?
Think twice when some salesperson sells you something. Do your due diligence in anything concerning money. And if you are interested in investing in real estate (which I still absolutely believe in), invest in your backyard to begin with. I personally do not advocate investing in unfamiliar territories and more so, some where you cannot get to easily.
For realtors, please take on a better job in discussing the pros and cons about investing in real estate. Do not just get these Investor buyers and leave them fending for themselves (I know several realtors in town that have done so). At the same time, I understand that it takes two to tango. So, investors, again do your due diligence.

Betting/ Gambling in real estate is NOT the way.

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