Foreclosures in Romania. 6 + 6 tips to get started

Part 2

(to read part 1, click here)

During the summer I had repeatedly stated that soon we enter in a new period, the one of foreclosures. Either starting with this winter or for sure during 2011 the problems of Romanian economy and Real Estate market will be transformed into something more painful: An endless list of foreclosures, for thousands of properties around the country.

"What is foreclosure?
"For the ones who are not experts, I call foreclosure the procedure during which a bank sells a property through auction. This property was obtained by a loan which was not paid. Usually the investors' interest is concentrated in the second and the third auction, which have lower prices, under the price of mortgage that the bank had placed on the property. So, e.g. the bank placed a mortgage of 100.000 Euro. If it will accept the property to {C}enter into second or third auction with a lower price, then this is "foreclosure" (there are many more details about it, but this is the main idea).

7. Ok, sometimes you cannot visit the property, but still you should be able to see photos etc
I have been offered plenty of properties for which no serious information existed, except the surface and the address. When I asked to visit them, I was informed that this was not possible, for various reasons. Then I asked for photos. If someone showed me photos, we continued the discussion, if not we simply stopped. I don't buy a property in a "blind date" mode. Do you?

8. Even if you buy cheap, the basic rules of Real Estate are always valid
Ok, you found a property with a low price. So what? Is it in the right area? If it is an apartment, what is going on with the rest of the building, the neighbours, the possible necessary renovation etc? If it is a land, where are the utilities? How many sq.m. can you build and how? If it is an unfinished building, how much do you need in order to finish it? Also, do you really need this cheap property? Does it serve your investment strategy? Or you will end up with a property which "you will keep it for the future" without knowing what you can really do with it?

9. Which kind of properties are the easiest ones to obtain with foreclosures (or through banks in general)?
Unfortunately for the investors who want to buy a small apartment for them, this is the most difficult task to accomplish, to obtain it by themselves through foreclosures. Why? Demand and supply. Too many people want a small number of good properties being sold in small prices.

Usually investors are luckier if they choose properties from the following categories:

• Lands, with a value of over 300.000 – 500.000 Euro, up to many million.
• Unfinished buildings.
• Unfinished (or finished but empty) developments.
• Bulk (big number) of apartments. From 10 to 300 or more.
• Other type of properties.

Usually only few of all these have a great location. Probably the "package" includes some problems too. But you can find opportunities as well, especially if you collaborate with the right consultants.

10. Do I need to have all the money cash or can I hope for financing too?
It depends. When you go for properties from foreclosures, pressing everyone in order to lower the prices, you know very well that "cash is the king". If you go with your consultant to a bank and you choose a property from their portfolio (before auctions etc), usually they provide you financing, up to 70 – 80%. Don't ask for the interest rate though, it will be high for sure.

11. "What is the maximum deduction in price that i can target at?"
The first auction starts with the price of mortgage that the bank has placed. Officially there is also a valuation etc, but in the end this is the basis for the bids to start. The second one will start with a 25% discount comparing to the first and the third one will reach a 60% overall discount. So the starting prices will be 100, 75 and 40. Ofcourse no one can tell you that the property will not be sold during the first two auctions (ok, maybe there can be someone to tell you, but this is another story…). Also, sometimes the bank decides to have a minimum amount that it accepts as price and under this level it blocks all auctions.

12. What is the best way to access good properties sold at foreclosures?
I know, it is not easy. This is why I suggest to you to search for the appropriate consultants, who will help you succeed. Many people say that they know, but very few of them know even the basics about Real Estate, or how to protect your interests. Ofcourse you will have to pay them, don't be cheap with someone who works for you, especially in such a "sensitive" domain of activity.

My company offers this kind of services, but I also know some other serious professionals too. Make sure that you know your budget and you have a strategy and… go for it!

Yesterday's tips:

1. Moral issues. If you don't like to buy the property someone is losing, just stay away

2. Decide which kind of ex owners are "suitable" for you

3. Prices always start from high levels, because…

4. 95% of the bank announcements are expensive

5. Liquidators and court executioners will not really help you

6. Usually banks don't know / share vital information for the property you wish to obtain