Top 10 Foreclosure Opportunities

Many prospective homebuyers and real estate investors see the current housing market as a prime opportunity to find foreclosure bargains. But many are gun-shy about jumping into the market before it hits bottom — a concern that can be mitigated by investing in fundamentally sound housing markets.

“I think real estate, if you do your homework, I think it’s still a good investment,” said Ron Welch, data researcher for the University of Houston Institute for Regional Forecasting. “There are a lot of people making a lot of money in real estate right now. It’s not going to be as good as it was. (But) it’ll come back at some point.”

Welch knows about profiting from real estate purchases made in a down market. He said he bought hundreds of lots in Houston for “next to nothing” back before the area’s real estate market turned around in the early 90s. He sold the lots for $25,000 each once the market rebounded.

“It’s all a matter of timing,” he said. “We know that at some point the market is going to correct itself.”

The current market conditions are not conducive to speculators looking for quick, short-term gains, according to Richard Hastings, senior analyst for credit rating agency Bernard Sands. He said investors should look for areas with long-term sustainability.

“Is there a 24-month phenomenon or a five- to seven-year phenomenon? You want to look for the five- to seven-year phenomenon,” he said, adding that diverse and well-paying employment — along with a prolific presence of higher education institutions — as key indicators of strength and sustainability in a local housing market.

“The opportunities are closely correlated to the job markets in local area. The types of jobs, types of wages mean a lot to the stability of the housing market,” he said, noting that in some areas where price appreciation has skyrocketed over the past few years, wages are not high enough to support a continued rise in home prices.

Certain areas of North Carolina and Texas have the ingredients to sustain a growing housing market, according to Hastings. He also pointed to the Northeastern Megalopolis stretching from Richmond, Va., through Boston as a region with strong job stability and a large pool of skilled workers.

“You have to look at major metropolitan areas and analyze what are their long-term stability factors,” he said. “In places where there’s the right platform for sustainability that’s where there’s the best opportunity for price appreciation.”

Welch believes the housing market in the south is generally doing better than other areas of the country. He mentioned areas of Texas, Louisiana, Mississippi and Florida as examples.

“Any place that has an energy economy (is strong). In Houston right now, and Dallas-Forth Worth, people are working. People have good jobs,” he said. “If I was going to do any investing right now it would be Houston, maybe Dallas-Fort Worth, maybe Tampa, maybe Phoenix a little bit.”

Andrew Couture of Neighborhood Scout, an online service that allows users to research and analyze neighborhoods nationwide, said investors should also consider neighborhood-specific factors such as school quality, crime rate and gentrification when deciding where to invest.

“A good neighborhood is a combination of access to amenities and opportunity. If there are jobs — access to opportunity — and things that people enjoy doing — access to amenities — those are the type of places that are going to be good investments,” he said.

The going rental rate is important, especially in a market where the best investment strategy is to buy and rent rather than buy and flip, according to Welch. He looks for properties where he can comfortably charge more for rent than it costs him to carry the mortgage. He expects demand for rental homes to increase in areas with high foreclosure rates.

“A lot of people are going to lose their houses and they sure don’t want to move into an apartment. And so they’ll be looking for a three- to four-bedroom house that they can afford to rent,” he said, adding that knowledge of supply-and-demand forces in any given market is critical for investors. “You just have to know your area, your market.”

Below are the nation’s top 10 metro areas to invest in foreclosures based on RealtyTrac’s analysis of average savings on foreclosure purchases, short-term and long-term appreciation rates from Freddie Mac, and job growth from the Bureau of Labor Statistics — along with factors such as school quality and crime rates from Neighorhood Scout. Although deep discounts were also available in many other cities, the underlying economic fundamentals were strongest in the following areas.

 

Metro Area

Avg. Foreclosure Savings

1-Year Appreciation

5-Year Appreciation

YOY Employment Growth

Beaumont-Port Arthur, TX

35%

15.43

29.26

1.9%

Richmond, VA

29%

7.72

67.20

2.0%

New Orleans, LA

61%

5.50

52.27

6.8%

Durham, NC

36%

7.35

25.46

3.2%

Asheville, NC

27%

6.70

51.46

2.2%

Charleston, SC

25%

9.02

64.03

4.3%

Kansas City, MO-KS

31%

6.60

25.73

1.4%

Jacksonville, FL

27%

6.42

84.20

2.0%

Akron, OH

35%

5.59

16.13

1.3%

Pittsburgh, PA

50%

6.44

27.13

0.6%

 

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