We can all agree that the significantly increased interest rates have put a financial strain on many homeowners in Canada. Unfortunately, the situation is not going to get better anytime soon.
Strong immigration growth in Canada combined with high interest rates and generally low supply of quality rental housing is going to continue put pressure on the housing and rental markets in those higher demand communities across Canada. There is opportunity for those investors that are prepared.
Investing in foreclosures, also known as foreclosure investing or buying distressed properties can be a lucrative opportunity for some investors, but it also comes with certain risks and challenges.
Investing in foreclosures in Edmonton, like any real estate market, has its own set of advantages and disadvantages. It’s important to note that real estate markets can change over time, so it’s crucial to conduct up-to-date research and consult with local experts before making any investment decisions.
As many of you know, I have been successfully working with clients mainly focused on bank-owned foreclosure properties, because the properties have already gone through any foreclosure process and are sold like other properties, only the lender is the vendor.
Here is a balanced view of investing in foreclosure properties in Edmonton.
Pros of Investing in Foreclosures in Edmonton
Lower Purchase Price
Foreclosed properties in Edmonton are often sold at a discount compared to their market value, offering investors an opportunity to acquire properties at a more affordable price. Typically, these properties are sold for lower than replacement cost, market and tax assessed values. Depending on the property condition, there could be resulting “instant equity.”
Potential for High Returns
Buying properties at a discount can lead to significant profits when the properties are sold or rented out after renovation. One caveat about selling the property is that the market conditions need to appropriate to sell at a higher value. Also, there are situations when little or no renovations need to be done. In those cases, the rental demand may be strong relative to your purchase price so that the rent covers close to or all of the operating and financing expenses even in this high interest rate environment.
Just imagine what the property’s cash flow would look like with strong and increasing rental demand and dropping interest rates.
Diverse Investment Options
Edmonton offers a variety of foreclosed properties, including residential homes, condos, duplexes, detached home building lots, and even commercial properties, allowing investors to diversify their real estate portfolios. Because of the current environment there are opportunities for almost every type of real estate investor or investment strategy. I have reviewed pristine property opportunities that require nothing to be done, I have also seen properties that require a complete tear down and rebuild, or a gutting of the interior, and everything in between. Some make sense to do while others do not as there would be a risk of no profit. That is the value of doing your research and having the right team to assist you.
Buyer’s Market Opportunities
In a buyer’s market, like during economic downturns or slow housing markets, there may be more foreclosed properties available for investors to choose from, increasing the chances of finding attractive investment opportunities. Higher interest rates have certainly appeared to have presented more opportunities lately.
Edmonton is known for its strong economy, often thought of as driven primarily by the oil and gas industry, which is certainly a part of it but it is the Capitol City of Alberta (larger public sector employer), an international and regional distribution hub and has other large employment sectors like technology, healthcare, and education. Alberta also has the youngest average age population of all provinces in Canada. When a population is young and there is a growing economy, those people are working, spending, and contributing to the growth within the economy. A growing economy can positively impact the real estate market over time. If the housing market in the area rebounds, the value of the foreclosed property may appreciate, leading to increased returns.
Additionally, Alberta does have a couple somewhat unique advantages compared to the rest of the country that can work in favour of the real estate investor under the right circumstances.
The rent controls reflect the conditions of a free market, meaning that rents can go up and down as the rental market conditions dictate.
Also in Alberta (and Saskatchewan), under certain circumstances individuals that are left in a position such that they default on the mortgage, they generally choose to mail their keys back to their lender (hence the “jingle” in the mail), and walk away. The bank will repossess the home and sell it for what it can to recoup the outstanding money, but they have no legal recourse against the borrower. This puts Alberta foreclosed properties in a rare situation where real estate investors can reap the benefits.
Cons of Investing in Foreclosures in Edmonton
Foreclosed properties are often sold “as-is,” which means they may require significant repairs and renovations, potentially adding to the overall investment cost. There are no set rules for how foreclosure properties offered. This is why it is imperative to do your research o have the right info, team, and offer conditions to take advantage of the appropriate foreclosed properties.
The real estate market can be subject to fluctuations, and investing in foreclosures can expose you to market risks. Economic downturns can impact property values and rental demand.
This is why working a knowledgeable and experienced REALTOR® that can help research the property, comparable properties and market conditions can make all the difference.
Limited Access for Inspection
Buyers may not have the opportunity to conduct a thorough inspection of the property before purchasing, increasing the risk of unforeseen issues. Because of the lower listed prices and usually higher buyer/investor competition, some lender vendors will not permit any access or professional inspection, where as other will permit access and inspection before or with an offer. It is very important to clarify this important point.
Investing in foreclosures can be competitive, as other investors may also be looking for discounted properties in the area. This is why I tell every client if they are considering mortgage financing that they need to be prequalified for financing before even starting to look at foreclosure properties. The more the investor is being prepared, the greater the chance the investor could be the winning offer.
Some foreclosed properties may have title problems or liens, which can lead to legal complexities and potential financial liabilities for the buyer. There are various foreclosure stages in the foreclosure process that can create a complicated situation. Reviewing the property title for any charges or anomalies is always a required step to take when it comes to investing in foreclosure properties. Legal review may be required in the more complex title situations. In order to avoid any title issues I focus on the lender owned properties because they generally have to deal with all the notable title changes/issues before selling the property, but as I stated I also pull and review the charges on title for the deals I work on to ensure no issues exist when it comes time to close.
Securing financing for foreclosed properties can be more challenging than for conventional properties, as lenders may see them as higher-risk investments. This is especially true when it comes to the less than simple foreclosures, such as when there is non-conforming property, requires a high level of repair, redevelopment, rezoning, etc. To avoid this situation, it is wise to work with an experienced investor-oriented mortgage broker as they will be knowledgeable of the ever-changing financing landscape.
Investing in foreclosures can involve purchasing properties from individuals who faced financial hardship, which may raise ethical considerations for some investors. There can also be situations where law enforcement may get involved and nobody really wants willingly to get involved that type of situation. To avoid this potential high emotional situation, I focus on the lender owned properties which are generally transaction based.
Overall, investing in foreclosures can be a rewarding strategy for prepared investors who have a good understanding of the local real estate market and are willing to take on the risks associated with distressed properties.
However, as I have frequently stated it is essential to understand the local market conditions, conduct thorough research and due diligence, seek advice from real estate professionals, accountants and lawyers to mitigate risks and make informed decisions before diving into this type of investment.
To get started and take advantage of these tremendous real estate opportunities, opportunities I send my clients regularly, email me.