Buying a personal residence at trustee sale can be financially rewarding. Ideal Home Brokers will locate and research the properties as well as attend the many auctions necessary to obtain one.
Irvine Home Address … 1 RIMROCK Irvine, CA 92603
Resale Home Price …… $1,550,000
The silicon chip inside her head
Gets switched to overload
And nobody’s gonna go to school today
She’s gonna make them stay at home
And daddy doesn’t understand it
He always said she was good as gold
Tell me why
I don’t like Mondays
Boomtown Rats — I Don't Like Mondays
I enjoy writing the news article posts, but its back to class for a more cerebral look at foreclosure sales.
Back in January, I went through the basics of Trustee Sales:
Over the next couple of weeks, we are going to explore the various ways you can participate in the clean up from the Great Housing Bubble:
Foreclosure 201: Buying a Trustee Sale Property as a Primary Residence
Foreclosure 201: Buying a Rental at Trustee Sale
Foreclosure 201: Flipping Trustee Sale Houses on Speculation
Foreclosure 201: Flipping Trustee Sale Houses to a Buyer in Escrow
Foreclosure 201: Buying Trustee Sale Properties Using Conventional Financing
IHB Fundamental Value reports for Owner-Occupied Trustee Sale Properties
There are many plusses and minuses of participating in the foreclosure market:
- save money,
- buy from inventory unavailable to financed buyers, or
- put money to work with a higher return than bank interest.
There are risks and disadvantages as well:
- Cash Only
- Limited Selection
- No Inspection
- No Title Insurance
- No Remorse Period
- Unannounced Postponements and Late Cancellations
- High Opening Bids
For more detail on these risks, please see Foreclosure 101: Mechanics of a Trustee Sale.
For buyers it isn't always about the discount as simply having "first dibs" is a big advantage, the fact that it is discounted to resale is a bonus. For instance, many properties that are tied up as unapproved short sales end up going to auction. All the finance buyers in the short sale queue get bumped by the purchasers at Trustee Sale. Cash brings the power to cut to the front of the line.
Also, In today's zero interest-rate environment, having cash tied up in real estate can provide a return on investment though saving on rent — assuming of course the property does not decline in value while during the holding period.
When we designed the IHB Fundamental Value Reports, we determined what information was most relevant, and we organized the reports to present this information clearly and concisely.
The cover page has pictures if they are available. The vast majority of foreclosures never hit the MLS, and often all we can get is a picture of the front elevation and perhaps a floorplan. We advise owners to budget for complete renovations. If they do not need to spend the renovation money, they should consider it a savings. Most will spend the money to enjoy their home once it is properly budgeted.
We present the basic property information: address, beds, baths, and so on. We show the scheduled date of the Trustee Sale (subject to postponement), and the published opening bid. The published bid is often meaningless as these bids are frequently dropped at the last minute.
The maximum bid amount is the most we recommend buyers pay for the property. At that price level, the all-in cost leaves enough room to get out at breakeven after commissions and closing costs if it turns out the buyer does not like the property. If people want to bid higher because they really like the property, that is their decision. If they want to bid less to obtain a bigger discount, we charge additional fees to attend the auction because most often it is a waste of time. Remember, a maximum bid doesn't mean it will cost the full amount; it represents the most that could be paid for the property.
The bold-faced items are the two data points of high importance. The first is the date by which a buyer must make a decision to bid on the property. If a buyer is interested in a property, we must do additional title research and we don't want to scramble around on the morning of the sale and risk missing it. The second key datum is the total amount of cash required on the day of the sale. Most often buyers have funds tied up in accounts that may take a few days to get liquid. The full amount is required in cash on the day of the sale. If a buyer is short of cash, nobody goes to the auction.
We provide our opinion of the likelihood of success given the foreclosure market comps, and we provide a breakdown of the total cost as well as the savings versus resale.
The final two lines show the annualized savings that accrue to an owner by eliminating rent. This savings divided by the total investment yields a capitalized ownership savings rate that owners may compare with the returns their are obtaining in other investments. This number is generally quite small, and it usually does not provide a return justifying the risk, but in today's savings environment, it is usually far better than a certificate of deposit.
The second page provides the detail for the summary numbers on page 1. The sale day cash requirement is the sum of the maximum bid amount and the trustee sale fees. The total trustee sale cost includes renovation and improvements, property taxes (both back and current), an allowance for tenant move out and cash-for-keys if necessary, and transer taxes due. The cost of ownership includes the standard costs minus any financing costs as this is an all-cash deal. The comparable rental rate minus the cost of ownership is the monthly savings the owner enjoys by not having a house payment.
The bottom of page 2 has comparable information for trustee sales, resales, and rentals.
Page three shows the various comparable ranges and cashflow values with a summary chart.
The owner of today's featured property bought it for well under his current, delusional asking price. Despite his delusions, he did get a great deal on a large and very desirable property in Turtle Rock. If he is fortunate, the next leg down in pricing won't drop below his purchase price. If he is very fortunate, some fool will buy this from him and make him half a million dollars.
Irvine Home Address … 1 RIMROCK Irvine, CA 92603
Resale Home Price … $1,550,000
Home Purchase Price … $903,000
Home Purchase Date …. 7/9/2009
Net Gain (Loss) ………. $554,000
Percent Change ………. 71.7%
Annual Appreciation … 66.6%
Cost of Ownership
$1,550,000 ………. Asking Price
$310,000 ………. 20% Down Conventional
5.24% …………… Mortgage Interest Rate
$1,240,000 ………. 30-Year Mortgage
$329,769 ………. Income Requirement
$6,840 ………. Monthly Mortgage Payment
$1343 ………. Property Tax
$0 ………. Special Taxes and Levies (Mello Roos)
$129 ………. Homeowners Insurance
$150 ………. Homeowners Association Fees
$8,462 ………. Monthly Cash Outlays
-$1599 ………. Tax Savings (% of Interest and Property Tax)
-$1425 ………. Equity Hidden in Payment
$644 ………. Lost Income to Down Payment (net of taxes)
$194 ………. Maintenance and Replacement Reserves
$6,276 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$15,500 ………. Furnishing and Move In @1%
$15,500 ………. Closing Costs @1%
$12,400 ………… Interest Points @1% of Loan
$310,000 ………. Down Payment
$353,400 ………. Total Cash Costs
$96,200 ………… Emergency Cash Reserves
$449,600 ………. Total Savings Needed
Baths: 2 full 1 part baths
Home size: 3,000 sq ft
($517 / sq ft)
Lot Size: 11,305 sq ft
Year Built: 1977
Days on Market: 38
MLS Number: S608756
Property Type: Single Family, Residential
Community: Turtle Rock
Excellent location! Panoramic views of hills and city lights! One of the best street in Turtle Rock! Completely remodeled. Spacious, open and convenient floor plan, 5 bedrooms and 3 full bathrooms. Main floor bedroom with full bath. Gourmet kitchen with breakfast nook. New cherry wood cabinetry, granite counter tops and state-of-the-art stainless steel appliances. Remodeled bathrooms. Remodeled fireplaces in living room & family room. Cathedral ceilings in the formal dining room. Premium hardwood flooring. Designer carpeting in bedrooms. New dual pane windows. New garage doors. Freshly painted. Spacious private gated courtyard. Endless views from cozy back yard. Fabulous association amenities pools, spas, tennis courts, club house, playgrounds & parks. Steps from award winning Bonita Canyon Elementary School & park area & minutes from desired University High School and UCI.No Mello Roos, low association fee. Excellent opportunity!
The spending former owners
- The owners who lost this house in foreclosure owned longer than my property records go back. The earliest record I have is a $100,000 HELOC in 1997. It is safe to assume these owners paid very little a very long time ago.
- On 12/19/2002 these owners refinanced thier first mortgage for $450,000.
- On 8/25/2004 they refinanced again for $650,000.
- On 9/7/2006 they refinanced one last time for $825,000.
It looks like they needed an extra $200,000 every two years to keep up with the Joneses.
I am surprised this went to auction because they appeared to have equity on auction day. Now the new owner has it.
Recording Date: 05/26/2009
Document Type: Notice of Sale
Recording Date: 02/18/2009
Document Type: Notice of Default
The MLS for Foreclosures
Ideal Home Brokers is the multiple listing service for foreclosures. If there is a property coming to auction, we will facilitate bidding in that market just as others do in the resale market. Many people search for foreclosures because they want to find a bargain, but most people have no idea how to research properly, and even fewer know the mechanics of the trustee sale. We do.
Let us be your portal to the foreclosure market.