Wikinvest Wire

Peter Hong buys a bank repo

Monday, November 10, 2008

My wife and I have more than a passing interest in this story about LA Times writer Peter Hong and his quest to buy a foreclosed property and bring his days as a renter to an end.

We too have tired of writing checks to the landlord each month after having done so for a few years now, often feeling the need for more permanence and desirous of being able to decorate as we see fit or knock down a wall if the mood strikes.

Fortunately for us, we still haven't made a final decision on what state we want to live in (we now think it is Oregon), so that makes renting a place that much easier (and convenient).

But still, we're thinking of maybe buying a bank-owned property sometime next year.

That is, if the price is right.

Peter's report covers the whole gamut - preforeclosures, auctions, bank-owned properties, and flipped foreclosures which is what he and his family finally ended up buying.

I did not set out to buy a foreclosed house. Earlier this year, I wrote about selling my condominium unit in 2005 to rent, rejecting the hyped promise of an always-rising real estate market. Now I've purchased a foreclosed home -- but that doesn't mean I've bought into the new wave of hype in real estate, the idea that cheap, repossessed houses are a sure bet.
Some purchasers think foreclosed houses and condominiums are so cheap that they can make money flipping them -- just like in the old days of the housing bubble.
IMAGEBut the reality is that people who buy now are still taking a big risk. The median home sale price in Southern California has fallen close to 40% from its peak, and chances are good, to say the least, that it will keep declining.

That was OK with me, though. I was not counting on price appreciation. After three years in our rented house, my family basically wanted to get a place we could decorate as we pleased, and one with at least some of the features we had been living without -- a two-car garage, air conditioning, a kitchen sink with a garbage disposal, maybe even a dishwasher.

When we began looking for a place early this year, though, the prices set by individuals on their homes seemed ridiculous in light of the market crash. And sellers wouldn't budge, even when they got no offers.

But there's hardly a more motivated home seller than a bank trying to unload a house it had to take over when its owner defaulted on the mortgage. So it seemed as if foreclosed properties might be the best if not the only choice for us. There were plenty of them out there: Half the homes sold in Southern California in September had been foreclosed, and they will probably make up the majority of homes sold in the region for at least the near future.
Peter details his entire experience and this piece is well worth reading in its entirety if you are interested in this sort of thing.

One of the more intriguing elements that he details is the relationship between banks, realtors, and "vulture investors". I've also noticed similar goings-on where some houses are sold at "super-steep" discounts and then show up for sale again a few months later.

It seems the problem for vulture investors in parts of Southern California these days is that prices are falling so fast that even the "super-steep" discounts of three or four months ago provide insufficient cushion to turn a profit.

In the end, Peter just wanted a place to call his own and that's what he got.

That's what we want too.

Also see: Tips for bidding on a foreclosure

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GawainsGhost said...

Well, I sell repossessed homes, and I'm going to give you some insider info. The asset managers at these corporations work on a bonus scale based on how many sales they make in a month. So if you're in the market for a repossessed home, what you do is make your offer at the end of the month, because the asset manager is much more likely to negotiate the price and make the sale, so he can increase his bonus.

Buying a repossessed home is the way to go. Most, in fact all, homeowners think their house is worth more than it really is and more often than not refuse to negotiate on the price. But a bank owned property or REO is owned by a corporation that cannot occupy the house and wants to sell it. The list price is based on the sales price of similar homes in the immediate area that sold in the last six months. And the sales price is always negotiable.

If I were you, I would seriously look at homes that are on the market by Fannie or Freddie. As much grief these GSEs have taken recently, they actually perform a much needed service and provide a quality product. Their houses are cleaned and, if necessary, repaired, and usually come with fresh paint and new carpet. Fannie also offers special financing through ExpressPath on selected homes.

The most important thing to remember about purchasing a home is that you buy a home to live in it. Forget about price appreciation or depreciation. In the end, the only way you lose money in real estate is if you're forced to sell.

Tim said...

Thanks for the info

Nostradamus, apparently said...


I live in Oregon. I was born in Roseburg. I lived in Eugene for 3 years while I attended law school at the U of O. I've lived at the coast, in Salem, in Portland, Bend and several other places in Oregon. I currently live in southern Oregon.

Eugene is the most liberal city in Oregon. That may be ok with you politically but you may not like the extrememly high tax burden that goes along with the liberal views.

Before moving to Eugene and buying a house there, check the property and other local taxes carefully.

Also, Eugene has the most dreary weather in all of Oregon. I've lived all over Oregon and nothing compares. It's like living in London where it is constantly overcast and drizzling.

Unless there were some compelling reason, there's no way I'd move back to Eugene.

If you like the great outdoors and mild weather, southern Oregon is the place to be.

If you don't mind extremely harsh winters and like the outdoors, try Eastern Oregon. Bend is fun but COLD!

If you like big cities and all the fun and excitement, live in Portland. Portland is the best big city I've even been to. We lived there for 13 years until our kids were born and we loved it.

But, again, check the local tax picture before moving and understand the weather is a big issue here.

Good luck!

Tim said...


We've looked around Southern Oregon quite a bit - could you recommend some more areas for us to look either in the comments or via private mail (


GawainsGhost said...

You're welcome.

I would also add the following. If you're in the market for a home, the first thing you should do is get your financing. The best financing would be 20% down on a 15-year fixed-rate mortgage (lowest interest, no PMI). Then you know what price range you can shop in and are prepared to make an offer immediately once you find a house you like. The best houses, by the way, are older, well-maintained homes in established neighborhoods with good schools, but you won't find many of those on the repo market.

The second thing you should do is find a Realtor (preferably a broker with at least 10 years experience) you like and sign a buyer's representation contract. It won't cost you any money, because the seller pays the commission, and you'll have a licensed agent, who can give you advice and opinions, representing your interests.

Tell your Realtor what price range you want to shop in and what your specific requirements are--square footage, number of bedrooms and baths, school district, etc.--then let the Realtor find the house for you. Realtors have access to search engines, like MLS, that you don't.

When the Realtor finds a house or houses that meet your specific requirements, tell him or her that you want the following information: the assessed value of each home (this will tell you the taxes), a history of the subdivision going back five years--the number of houses that have sold and their sales prices (this will tell you whether prices in the subdivision are appreciating, depreciating or remaining stable)--as well as 3 comparable sales and 3 comparable listings for each property under consideration. Based on this information, you will be able to arrive at a reasonable or fair market value on which to base your offer.

Then make that offer. The seller will either accept it, negotiate or reject it. If the seller accepts, great, you got the house you wanted at the price you were willing to pay. If the seller negotiates, then you can decide whether to increase your offer or not. If the seller rejects, fine, move on to the next house.

The thing about real estate is this. A house is only worth what someone is willing to pay for it. In all negotiations, the final contract comes down to a willing buyer and a willing seller agreeing on a price.

You should never pay more for a house than you're willing to pay. This is why having a licensed agent representing you is so important. Because the information your agent can provide you with will help prevent you from overpaying. An informed buyer is an intelligent buyer.

Finally, you should never think of a home as an asset. An asset generates income; a liability generates expenses. A home is a capital savings (equity) account with expenses (taxes, maintenance, utilities, insurance). Home ownership does have its advantages (income tax deductions, the peace of mind that comes with knowing you can do with it what you want, etc.). As long as you maintain your home, you won't lose money when you decide to sell.

When you do decide to sell your home, you should perform routine rennovation--fresh paint, new carpet, but especially upgrade the kitchen and the baths. Double the cost of those rennovations and add it on to the price you originally paid for the house, and you'll generally get that sales price and recover all or more of the equity you put into the house. So you won't lose and quite possibly could make money.

I hope this helps you in your quest to buy a home.

Christian said...

Have you considered the Lake Tahoe area for your home purchase? Aside from being my personal paradise on earth, if you live on the Nevada side you get a pretty decent tax break.

Anonymous said...


You are exaggerating about Eugene having the worst weather. I used to live in Portland and that "constantly overcast and drizzling" "dreary" weather happens all over the northwest quadrant of Oregon.

And pretty much all of the cities on the I-5 are full of hippy liberals. When I lived there, the state was taking 9 percent of my income on top of the Federal Government's monster theft.

Nostradamus, apparently said...

The weather in Portland is quite a bit different than the weather in Eugene. I know, I've lived in both places for years.

Eugene is dreary while Portland is much more interesting.

And, yes, the state income tax is still 9% but there's no sales tax.

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