Foreclosure investors had an uphill battle in 2020. With foreclosure moratoria in place across the country -- not to mention mortgage forbearance options for many -- the coronavirus pandemic sent foreclosure filings screaming to a halt.
In fact, according to a report from ATTOM Data Solutions, foreclosures were down 80% from November 2019 to November 2020.
If you’re an investor in the sector, it undoubtedly affected your bottom line, or at the very least it slowed your progress. It might even have you pondering a pivot as the new year gets underway.
Is that the best move? Should you turn your attention toward other niches in real estate or continue your path as a foreclosure investor? Here’s what you need to know before making that decision.
Foreclosures will continue to be in short supply for a while
Foreclosures have been pretty limited in the last few months, thanks to the many mortgage forbearance options and foreclosure protections across the country.
It seems that trend may continue, at least in the short term. In December, the Department of Housing and Urban Development extended its foreclosure moratorium through February 28, while the Federal Housing Finance Agency announced its moratorium would continue through January 31. Combined, these two measures protect both federally-mortgaged properties and those financed by Fannie- and Freddie-backed loans for at least the next few weeks.
There are also state- and citywide protections that will limit investors’ options for the foreseeable future. In New York, for example, Gov. Andrew Cuomo extended his state’s foreclosure moratorium through May 1. Considering it takes over a year to process foreclosures in New York, it will be quite a while before many distressed properties hit the market there.
When you do find a foreclosure, the deal might not be as big as in years prior
Foreclosures aren’t the steal they once were. With for-sale inventory at record-breaking levels and distressed properties in short supply, competition is stiff for the few foreclosures that do hit the market. This has driven up prices and put a dent in the typically large profit margins that many investors expect.
According to data from Auction.com, foreclosures are now clocking in at around 86% of their estimated market value -- their highest price point since 2014. In states like Georgia, North Carolina, Tennessee, Arizona, and Virginia, they’re going for more than 90% of their market value.
The point? If you do find a foreclosed property this year, be prepared to pay a bit more for it than you’re used to.
Pre-foreclosures may be worth a look
Though there’s a chance foreclosure moratoria may get extended, they likely won’t last the full year, especially once coronavirus vaccines are more widely distributed.
Still, even when those measures expire and foreclosure filings pick back up, it can often take months or even years for properties to hit the market. This is particularly the case in judicial foreclosure states, like New York, New Jersey, Maine, Indiana, Pennsylvania, and Illinois. According to foreclosure platform RealtyTrac, it takes anywhere from 240 to 445 days to process a foreclosure in these states.
Fortunately, pre-foreclosures can be a good option when filings are just getting started. You can purchase properties in the early stages of foreclosure at a discount, flip them, or even rent them back to the homeowner for a profit. A nice bonus? It can help prop up home values in your area -- always a good move for business.
The bottom line
Much like in 2020, foreclosure investing is going to look a bit different this year. If you’re investing in distressed properties, stay on top of foreclosure moratoria in your area, and be ready to swoop in on pre-foreclosures once filings pick back up. Having some cash on hand is always a good way to stay competitive, too.