August 1, 2011

Cover Story

Energy Development in Utah

Gov. Gary R. Herbert sent a strong message to Washington during his State ...Read More

Featured Articles

Around Utah

At Your Service

Sections

Legal Briefs
Climate Change

Ask the Experts
Close to Home

Ask the Experts
Damage Control

Editor's Note
Do the Math

Economic Insight
Friends in High Places

Features
In the Pipeline

Ask the Experts
Layered Security

TechKnowledge
Let’s Make a Deal

Business Trends
Look Before You Leap

Focus
Out of Reach

EntrepreneurEdge
Ramping Up

Industry Outlook
Technology

Executive Living
The Suite Life

Ask the Experts
Web Insights

Money Talk
Window of Opportunity

Features
Work of Art

Ask the Experts
Close to Home

Spotlight
Alex Lawrence

Spotlight
Jenni Smith

Players
Players

Article

Look Before You Leap

Foreclosed Homes Can Turn Big Profits—or Turn into a Money Pit

Josh McFadden

August 1, 2011

Even in a struggling economy, some real estate properties are attractive investments. The practice of buying foreclosed homes is alive and well, and experts say a lot of money is to be made in these properties.

“This is a good market for flipping—fixing up a foreclosed home and selling it for profit,” says David Madsen, broker and owner of Thornton Walker Real Estate. “You can get homes for a good price and then sell for a good return.”

There certainly are plenty of foreclosures to choose from.

RealtyTrac, which collects data on auction and bank-owned listings throughout the United States, reported that there were 19,661 foreclosed homes in Utah as of June 30. A reported 7,566 such homes could be found in Salt Lake County alone, along with 3,587 in Utah County, 1,385 in Weber County, 1,136 in Davis County and 806 in Summit County. Outside the Wasatch Front, Washington County led the way with 2,129 foreclosed homes. Statewide, one in every 294 homes received a foreclosure filing in June 2011.

DeAnna Dipo, Salt Lake Board of Realtors president, says prospective foreclosed property buyers are finding great deals, particularly those purchasing Salt Lake County homes.

“Buyers are getting great value—usually below market value,” she says. “Salt Lake County pricing has stabilized. Higher-end properties are 40 percent to 50 percent less than two to three years ago.”

Dipo says an advantage to buying foreclosed homes is that typically everyone who does so has equity right away. She also says a 3 to 4 percent equity increase per year is a healthy market.

“Too much of an increase too soon is a concern,” she says. “But you don’t see the high highs and the low lows in Utah.”

Both Madsen and Dipo acknowledge that many foreclosed property buyers pay with cash.

When investing in foreclosures, the idea is to purchase the foreclosed properties, make needed repairs and improvements, and then put them back on the market to hopefully sell at a higher price. Madsen says the ultimate goal is to turn around and sell the properties for a profit in as little as 90 days. He says this is certainly achievable, but in reality, the turnaround time varies depending on the cost of the home and the location, among other factors.

Buyer Beware
While investing in a foreclosure has the potential to bring good returns, one must exercise caution and sound judgment. Madsen says it’s essential to have a well-conceived strategy and enlist the help of seasoned professionals if necessary.

“Most people who purchase have a plan in place,” he says. “You have to understand the timeframe. You need to partner with someone or really know what you’re doing.”

It starts before the foreclosure is even purchased, Madsen says. From the time you first begin looking for a foreclosed home, using a realtor will save you stress and help you understand whether the home will sell and whether it is a wise investment.

“You can’t just roll the dice on choosing a property,” Madsen says. “A professional can just look at the property and say if it’ll make money.”

Dipo insists that realtors have the expertise and the willingness to help buyers make the best choices.

“You might make bad judgments on your own,” she says. “With the market we’ve lost a lot of realtors, but we’re seeing busier offices now. The [realtors] here are working hard.”

But choosing a foreclosure is only the beginning, and it’s only a small part of the process of flipping it.

Foreclosed homes generally require at the very least minor repairs; often, major repairs and renovations are necessary. Madsen warns that if a buyer isn’t aware of the needed repairs from the outset, the costs to fix up the home could nullify any potential profits. However, some problems are only found after a purchase is made.

“One of the risks is that you’ll open a wall and find more problems,” he says. “Some maintenance issues are not seen by the inspection or appraisal. This makes the costs more and the profit less.”

Regardless of whether maintenance issues are found before or after the purchase, knowing how to make the repairs is a crucial ingredient in making the foreclosure an attractive sale for profit. Madsen stresses that buyers had better be ready to roll up their sleeves and work hard. Many buyers are handy and can make the repairs on their own. If they’re not skilled in these areas, Madsen advises to find someone who is.

Once the repairs are made and the home is ready to sell, a realtor or other professional can help make the foreclosure visible and appealing to new buyers.

“I used to think, ‘what’s the big deal?’ But it’s worth having a professional,” Dipo says. “It makes all the difference in the world.”

“Get help if you’re a novice,” Madsen says. “If you don’t trust an agent, find someone who knows what they’re doing. If you just jump into it, the likelihood of getting burned is 100 percent.”

Utah Business Social
UB Events View All
Community Events View All
Banking on Women™ Program
Sep 4, 2014
Westminster Seeks Female Entrepreneurs for Free Training Program Revolutionary Banking on Women™...
Bob the Builder™- Project: Build It Traveling Exhibit at Discovery Gateway
Sep 7, 2014
Bob the Builder™ and his Can-Do Crew invite aspiring builders and their families to help get the ...

info@utahbusiness.com  |  90 South 400 West, Ste 650 Salt Lake City, Utah 84101   |  (801) 568-0114

Advertise with Utah Business

Submit an Event

* indicates required information
* Event Name:
Price (general):
Website (if applicable):
Coordinator's Name:
Coordinator's Email:
Coordinator's Phone:
Venue Name:
Venue Address:
Venue City:
Venue Zip:
Event Capacity:
Date(s):
to
* Event Description:
  Cancel