Clark Howard's Tips

Pay attention to foreclosures at the risk of missing other deals

July 9, 2008

We live in a time when "Dare To Be Rich" foreclosure schemes are pushed via infomercials, web ads and more. If you believe the hype, foreclosures are the hottest deal since sliced bread.

But do you remember when it was all about how to get rich with leverage using other people's money to buy real estate? Well, the whole house flipping trend ended in "jingle mail" -- that's what lenders call it when you mail in the keys and just walk away from a mortgage.

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So we've moved from excessive speculation to excessive hype. Clark has done well with foreclosures over the years. He actually purchased his most recent one about 5 months ago. But realize this: Foreclosures are just one area of opportunity, not the "be all, end all" area that people think.

In fact, foreclosures are part of a larger category of "people problem" houses. These are houses sitting on the market as wounded ducks because the owners endured a job loss, a divorce, a relocation or other troubling scenarios.

The bottom-line is this: People focus unnecessarily on foreclosures. All manner of distressed real estate can be a deal. The key is to know local market conditions where you're buying.

You have know the exact neighborhood you're targeting. Go after the properties that are REOs (real-estate owned by the bank or lender) for 45 days or longer. Lenders are usually unrealistic about properties on their books for about the first 6 weeks.

But don't think foreclosures are the magic bullet. They're just one possible way to get wealth. Again, know the neighborhood, and pay attention to those houses sitting on the market for 150 days.

Beware of agents who may delete a listing and relist it to conceal the fact that the seller is desperate. This practice may be illegal in some states. So dig through the MLS and see if the house has been listed before.

Think of the real estate market as a pie. Foreclosures are only one slice; look at the people problem houses -- relocation, job loss, estate sale, divorce and others.

More Clark Howard Home Tips Capitulation has benefits for buyers and sellers  Inflated home values are in the eye of the beholder  Is it time to raise your homeowner's coverage?  A bust, a bailout and new mortgage lending rules  Pay attention to foreclosures at the risk of missing other deals  Hawaii, California mandate new green energy measures  Jumbo loan relief finally hits the market  Consumers win the battle of Real Estate commissions  Investors to hand you a mortgage reduction?  Occupancy fraud stalls housing market recovery  Full list