As a real estate broker licensed in the state of Oregon and I’m a leading short sale specialist in the Portland area I was recently asked to share my opinion of the best/worst investments I’ve seen in real estate. My opinion as a Realtor does not constitute, legal, tax or investment advice. Lastly, the question of absolute worst real estate investment also incidentally leads into one of the better investments I’ve seen.
The Worst Real Estate Investment I Have Personally Encountered:
First off, let me preface this by saying that condo developments have proved very profitable in a number of cases. However, in this specific example things unraveled to devastating effect. In the years leading up to the housing crash a wealthy extended family in my area developed a condominium complex (one of many they had previously developed). In order to push approval of the complex through, it appeared that the family may have pulled favors and had in-laws, grandchildren and others close to the family pre-buy into the complex so that the complex could reach its quotas for units pre-sold. Furthermore, it appeared that mortgages for the relatives’ units may have been done by another distant relation who may have pulled strings to get these loans approved without too many questions like: “You live and work in California but you’re buying a primary residence in Oregon?”… Nobody asked those types of questions. After all, if your wealthy grandparents gave you a new car and put you through any college you wanted to attend… you may find yourself owing a favor to the family and buying a condo that you’ll never even have to really live in. That’s not so bad, is it? The condo units were supposed to be quietly and slowly sold off in due time after construction was completed and the family’s wealth was set to expand even more. Well, the harm came when housing crashed and almost every single unit in the complex went into foreclosure and the banks denied the grand-children’s short sale claims because most of those who bought units still had okay jobs and were not yet in enough financial distress to qualify for short sales. Also, it came out that the loans were approved on bad information.
In summary, the grandparents lost millions in their own capital. In turn, the parents ended up highly leveraged on adjacent land that was to be used to further expand the construction that culminated in many of the parents’ being foreclosed upon. And finally some of the children who were stuffed into bad mortgages ended up on the hook for promissory notes in excess of $50,000 each or being foreclosed upon. Also, the loan officers, appraisers and others under the family’s influence may have also experienced costly repercussions when this deal tanked but thankfully, I wasn’t close enough to the deal to know those exact details. Perhaps ironically, this “worst deal” leads into the best deal.
The Best Real Estate Investment I have encountered:
The best real estate investment was when I saw companies and individuals buying up these distressed condo complexes one unit at a time for as little as $50,000 per unit and turning them into giant apartment complexes and profiting greatly. After a certain number of units fell into foreclosure, the condos no longer qualified for any financing so cash-flush investors simply bought their complexes one unit at a time as money came available. Normally, you’d need to buy huge apartment complex and spend millions to get units as cheap as 50,000/unit but these distressed condos were much nicer finished and larger than normal apartments but could also be purchased in convenient, installments as each unit came up for foreclosure or short sale. When a certain investor hit a critical mass of units owned in a particular complex they would be forced to simply buy out remaining owners and convert the whole place to apartments, thereby reaching their endgame of owning an entire complex of upscale, new construction rental units for pennies on the dollar while purchasing them in small, affordable single units instead of a single outlay of capital.
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