What Makes Today’s Real Estate Conditions Different?
Many Canadian home-buyers and investors were lulled to sleep with record low interest rates for close to two decades and took advantage of the variable rate mortgages. All that came to a crashing halt in 2022, with the first of several interest rate hikes to curtail rapidly increasing inflation rates that dramatically increased mortgage interest rates.
Many home owners had not considered a 300% increase in the interest rates in one year, which dramatically affected their mortgage payments. As an example of how dramatically payments changed I will use the prime rate for the difference in the mortgage rates as a rough example. On a 500,000 mortgage with a 25-year amortization the month mortgage rate at 2.45% is $2,227.40 but at a 6.7% that same mortgage payment is now $3,409.97 or a 53% increase in the monthly mortgage payment.
Unfortunately this has led to some foreclosures. However, foreclosures can be a wonderful opportunity for the ready, willing, and able investors.
Why Foreclosures In Edmonton?
I have been investigating foreclosure opportunities in Edmonton since last year and have helped some of my clients buy some excellent foreclosure deals there. You can get my special report on why I think Edmonton is a great opportunity here.
Understanding foreclosures and how they work is very important as there are some differences from province to province. I have been focusing on Edmonton because of the investment opportunities stemming from the low price point of housing in comparison to the rental income that can be obtained.
Buying a foreclosure property MLS® listing in Edmonton can be a great way to get a good deal on a property as some of my clients have experienced. However, it’s important to be aware of some key aspects before making a purchase.
10 Essential Things to Know About Edmonton Foreclosures
Here are 10 essential things to know when buying a foreclosure property MLS® listing in Edmonton:
1) Understand the Foreclosure Process in Alberta
Foreclosure is the legal process through which a lender takes possession of a property when the borrower fails to make payments. Understanding the process can help you make informed decisions when buying a foreclosed property.
In Alberta the process is called a Judicial Sale, meaning that there are court processes that have to take place before a lender takes possession of the house. Ultimately if the borrower defaults after going through all the foreclosure processes or steps, the lender will have the right to sell the home and it will then be sold through an auction or traditional property sale.
2) Know the Market
Just because it is “cheap” doesn’t mean it is a good deal. You need to research the market and understand the current conditions for jobs, population growth, as well as for the housing sales, listings, and demand in Edmonton. This will help you determine the fair market value of the property you’re interested in and help you make an informed buying decision.
Knowing what the assessed value of the property is also a helpful indicator of the property value at a previous point (typically July of the previous year) in time for the current tax purposes.
3) Work With a Knowledgeable Real Estate Agent
A knowledgeable real estate agent can help you navigate the foreclosure buying process and provide valuable insights on properties that meet your needs. Through good professional connections sometimes these real estate agents can learn of foreclosure opportunities before they are listed on the MLS® system.
4) Get Pre-approved for a Mortgage
Before you start your search for a foreclosed property, get pre-approved for a mortgage so you know how much you can afford to spend. Many times the foreclosure opportunities are well priced and have very short timelines for accepting offers and due diligence periods within the offer process. In my experience, the cleaner the offer, the better the chances you have in being the winning offer. Remember more than likely when a foreclosure hits the MLS® system there will be multiple interested agents and buyers for this property.
5) Review the MLS® listing
Carefully review the MLS® listing for the foreclosed condo you’re interested in. Look for details on the condition of the property, its location, and any potential issues. Speak to your real estate agent to see if there are additional details in the agent’s version of the MLS® listing that could be helpful.
6) Do a Title Search
A title search can reveal any liens, judgments, or other issues that may affect the property. This information can help you make an informed buying decision. Knowing what you are dealing with in terms of what is attached to the title is absolutely critical beyond the physical condition of property. Are there right of ways, covenants, restriction, easements as well as the items mentioned above could have a significant effect on the current and future value and what can be done with the property.
7) Inspect the Property
A home inspection can uncover any issues with the property, such as structural problems or needed repairs. This information can help you negotiate a fair price for the property. Even though you usually have limited time, the seller’s agent will permit you to conduct a professional inspection of the property.
Inspecting the property is an absolute MUST step. You typically don’t know anything about the previous owner and often there may be minor or major deferred maintenance or worse. Structural and operational issues are not always visible to the untrained naked eye and to spend $500 to save potentially thousands is just prudent business.
8) Understand the Costs
When buying a foreclosed property, there may be additional costs to consider, such as legal fees, title insurance, and any needed repairs. You may need to replace missing appliances or other key elements to the property. Building in a contingency budget for these potential costs will better prepare you when negotiating a price.
9) Consider the Neighborhood
Make sure to research the neighborhood where the property is located. Look for information on crime rates, schools, and other factors that may affect your decision.
The quality of the Edmonton neighbourhoods can widely vary, so it is important to know those differences especially as they relate to your investing strategies for the properties. Are you planning to do a fix and flip, a buy and hold for long term rental, or a rent-to own? Each strategy may work better in one neighbourhood or another.
Knowing how certain neighbourhoods are planned or are actually transitioning can also be extremely helpful when investigating potential foreclosure opportunities
10) Be Patient
The foreclosure process can take time, so be patient and prepared for delays. Don’t rush into a purchase without doing your due diligence. Some deals just go quickly, and some competing investors will offer without doing their complete due diligence, usually based upon price. That can have disastrous results for the buyer that skipped this step as foreclosure properties are usually sold “AS IS’ NO Warranties or Representations and is NOT guaranteed to be in the same condition as viewed on closing.”
Even if the listed price is amazing and you don’t get the deal, you will always benefit from conducting due diligence. It is a learning process. Lastly, even if you have everything in place and have done everything right you still may not be the winning offer, but that should not discourage you as you should never fall in love with the deal. Does it make sense from a risk and reward perspective?
By keeping these 10 essential aspects top of mind, you can make an informed and successful purchase of a foreclosure condo MLS® listing in Edmonton. If you are interested taking advantage buying a foreclosure in Edmonton for investment purposes email me right away so that we can discuss your needs and get you started.