Rising Equity Offsets Losses In Foreclosures

January 28th, 2008

In Hawaii the real estate weather is not bad – prices are slowly but surely appreciating. This is luring more investors into the field because foreclosed or about to be foreclosed houses can offset the losses with gains in equity. Last November there were 113 foreclosures that calculated to one foreclosure out of 4,346 houses. The national rate is on for 617 units. The Aloha State has been protected from the horrors of the mainland foreclosure picture because of strong demand in the real estate market.

A new breed of entrepreneurs has come to the forefront who deals with trading in foreclosed properties. Tom Mitchell based in Hilo is the proprietor of We Buy Hawaii Homes. He has successfully completed his 15^th deal in single-family units. Mitchell does not come from a real estate background but seems to have picked up the strings successfully in his first forays. He started off by buying three units via multiple listing services. Then he started purchasing from owners in pre-foreclosure and also from foreclosure auctions. He commented that it is advantageous for both sides to clinch the deal before it is foreclosed. Each transaction needs a separate approach where an understanding is reached about splitting the equity gains. Mitchell financed the first deal with his credit card. It gave him the required push. The previous owners lost their house but enough was left over to enable them to purchase a bulldozer and start business afresh.

The slide in the real estate market has led to rise in foreclosures and weakening of the equity. This makes short sales difficult, as the loan amount is often more than the value of the house. Out of every 20 houses in foreclosure Mitchell finds only one of two with some equity. Mitchell is always alert that things might be bad for him as the market is very volatile. So far he is lucky to have made profits on all but one deal. He lost $10,000 on one but made $100,000 on another transaction. Generally he invests $50,000 hoping to rope in profits for half or two thirds of that amount. The going is not easy for him, as many have joined in to try their hand in foreclosure deals all through the islands. It requires a lot of hard work without weekend rests. Not many are as industrious as Mitchell – and here he has an edge over others.