As things start returning to some form of normal, I want to take a minute to sit down and talk about the short-term and long-term effects of COVID on wholesalers. I want to give you some feedback on what happened in some of my deals in March, April and May of 2020, and then I’ll tell you a little bit more about what the opportunities look like for investors, for wholesalers, and for transaction engineers. Keep an eye out for further information from me about the backlog of foreclosures that’s being created and how you can position yourself for that.
PANDEMIC SHUTDOWN
I want to set the scene for you first. In March 2020, the government issued a foreclosure moratorium. The courts stopped processing foreclosures, which in turn created a massive backlog. Foreclosures went from 2,000-3,000 a week to literally zero overnight. By July, we were at 5% of the total foreclosures that we saw in 2019, and by August, we were at 14% of the rate we were in the previous year.
From a complete and total shutdown of processing foreclosures, we’re starting to crack open the door on sending them through the courts again, but we’re still at a fraction of our regular numbers. In pre-pandemic numbers, according to Auction.com, we saw 4,200 foreclosures a week. Post-pandemic, or roughly five months after the pandemic began, there are only 345 foreclosures a week.
That 95% drop-off of foreclosures is putting the squeeze on inventory. No matter where you look, on the MLS, real estate websites, the HUD home store, or Auction.com, there’s significantly less inventory now than there was a year ago. Here’s the part where wholesalers and transaction engineers can benefit in the short-term: If you can find an off-market home to sell, you’re going to have a bidding war on your hands.
LONG-TERM OPPORTUNITIES
There’s no inventory for wholesalers, real estate investors, or retail home buyers, and homes are going for 10-20% over asking price. But this is also the space where you can step into opportunities.
Black Knight, which is a data aggregating service for the real estate industry, is currently estimating that 45% of all foreclosures that have entered into some kind of forbearance program with the bank will not be able to cure their loans. Based on historical data, Black Knight knows that a certain percentage of people will not make good on their forbearance agreements, and will go through with the entire foreclosure process.
How these numbers pencil out:
2,100 foreclosures a week * 42 weeks = 88,200 foreclosures by the end of the moratorium
I’m selling all of my smaller properties while inventory is low because I’m anticipating this wave of foreclosures when the moratorium is finally lifted. There’s a delicate dance of delaying distress going on right now. There are currently more 90-day delinquencies right now than there were in ‘08, ‘09, and’10. While we normally see a ratio of two 90-day delinquencies for every active one, we’re currently seeing a twelve to one ratio.
OUR STRATEGY SESSION
Think of this as our strategy session so that you can put yourself in the best position to ride this tsunami of foreclosures. Right now, you’ll need to take some extra steps to find the best possible deals, but it’s going to be worth it. This is what I would do right now: Log into my software Accelerated Investor Office and run a lead search for vacant out-of-town owners with high equity.
Then, get in your car and drive a route past all of these properties. For me personally, I would go look at multi-family properties with 2-4 units, and I would be keeping an eye out for distress.
- Are the properties vacant?
- Has the snow been shoveled?
- Has the grass been mowed?
- Are there utility turnoff notices on the door?
- Can you see papers piled up by the steps?
I wouldn’t need to go after 3,000 properties. I can hyper-target 30-50 that look like they’re distressed.
This is when I would get really aggressive with my marketing. Since I’ve already put in a little sweat equity by going to look at the properties, I don’t need to do any mass mailings. Instead, I’d just focus on cold calling, ringless voicemail messages, text messages, and even emails. I can see that these properties are distressed, so I know that something’s going on. I just need to find the seller who’s motivated to get these properties off his hands while the inventory is so low.
CONCLUSION
If you’re a wholesaler, real estate investor, or transaction engineer looking for properties right now, yes inventory is low. You will need to put in a little more effort to find a distressed property. However, because the inventory is low, that means any house you bring to market is going to sell at a premium.
When it comes time to pivot and adjust for the coming wave of foreclosures, I’m putting together private investors who are ready to purchase distressed properties. If you find a property that fits my criteria, I would love to connect with you. I have big goals for leveling up my real estate business in the next year, and I am actively searching for deals.
Listen to the full episode here.
Be Daring,
Josh
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