The first foreclosure I bought was in 2009. January of 2009, to be exact. The home was ugly, the property decent, the list price somewhere around $249k. In January of 2009 there was some sense that the market was bad, but what wasn’t clear yet was just how bad it would get. I bought, perhaps premature in the downward cycle, but I bought because I needed a place to live and had recently sold my primary home in Geneva National. As a broker who writes about vacation homes only, and as an audience that seeks info on vacation homes only, it’s sometimes forgotten that people buy homes primarily so they have a place to live. I admit I tend to think people buy homes so they have a pier to swim from. Anyway, I bought that house, that foreclosure, and I fixed it up.
I bought that home for $177k, put about $60k into a remodel, and sold it for $274k in the summer of 2012. Had I bought that home in 2011, and sold it in 2014, the gain would have likely been far more significant, due to the lower purchase price and the higher sale price. Prior to that property, this was the first foreclosure (REO) I had ever bought. Since that property, I have not bought any others. It’s strange to me to think about that, and I wonder why I didn’t buy more real estate when things were bad. The only answer I can come up with is that I wasn’t interested in the project, because foreclosures here tend to be projects. I love projects, but I tend to only love the next one once I’ve forgotten about the tribulations of the last one.
Even though I haven’t indulged the REO, I have a tendency to watch for these bank owned listings. When one comes to market, usually by one of the brokers that specializes in that sort of thing (I have listed and sold three lakefront foreclosures, but never anything off-water), I pay attention. I look at the details. I look at the pictures. I find myself contemplating the idea. I wrote an offer on a foreclosure last year, a personal offer, and then when the bank didn’t negotiate, neither did I. Last week, another foreclosure came to market, this one in Fontana, and cheap. I thought about it. I thought I should make an offer. It would need to be strong, at ask or better, and I thought about the possibilities for a while. A few minutes later I decided that it wasn’t for me, and I let the feeling pass.
But this is what foreclosures do, they incite a buying public to action, because even after seven years of seeing foreclosures with some frequency we have something programmed deep inside that assumes a distressed sale is a value. It’s a steal. When the market was in rough shape, I’d receive emails often wherein the sender asked me about lakefront foreclosures. They were interested, they’d say. Foreclosures, foreclosures, foreclosures. I’d always respond with the same suggestion. What if I can find you a better deal on a better property that’s not a foreclosure? This was typically the end of the email exchange, because for many a foreclosure was the opportunity they wanted even though value was what they purported to be seeking.
Today, foreclosures are not so exciting. They exist, but in small quantities. Some of the foreclosure action around the lake is the same stuff we’ve been talking about for years. The Loramoor lakefront is supposedly foreclosed on and re-sold already, but I don’t know the exact details. The short sale in Williams Bay that’s been for sale for years is scheduled for another sheriff’s sale. There’s a sheriff’s sale pending over by the Lake Geneva Country Club. Another one in Country Club Estates brewing, and one in Country Club Estates that’s available as REO. There’s the large lakefront estate that remains under IRS control, and perhaps that sale will someday occur via public auction. But for now, for the rest of us, the reminder today is simple. Distressed sales do not always mean value, even though we’re programmed to believe that they do. Better value is found in properties that are merely aged on the market, as those are the deals we should be seeking. If one happens to be a foreclosure, so be it.