Many apartment buildings are now facing foreclosure because of lower prices from original purchase, 5-7 year mortgages becoming due and stricter underwriting guidelines making it impossible to refinance. For the astute buyer of apartment buildings these apartment building foreclosures could represent an investment windfall.
For many homeowners, it simply makes no economic sense to continue paying for their mortgages when the underlying asset is no longer worth what they owe. As all eyes are currently watching the residential real estate market, the commercial side of real estate has hardly begun to realize the problems that may be looming on the horizon for many apartment building owners.
Homeowners who are able to continue paying their mortgages may decide to hold on to their property for a few years and hope that real estate prices recover. They are able to make this decision because they have 30 year mortgages.
In contrast to residential mortgage holders, many investors in commercial real estate are holding on to 5-7 year mortgages. This means that they will be forced to refinance their properties when the notes become due and it couldn’t be happening at a worse time. Many apartment buildings rose in value right along side residential real estate prices and too many of these owners paid too much for their properties because they figured that as long as they were seeing a net profit every year from their rent collection then they had nothing to worry about.
Apartment Foreclosures, Building Owners facing a dire situation
During the real estate investing frenzy apartment building buyers didn’t take into account the possibility that real estate prices would drop so precipitously is such a short period of time. Now, many apartment building owners are facing a dire situation.
For example, let’s assume an apartment building investor purchased an apartment building in 2007 for 1 million dollars. He came out of pocket for $200,000 and he financed the purchase with a 5 year balloon note that becomes due on January 1, 2012. He financed 80% of the purchase price. In the last years, however, the market price of his apartment building has dropped 20%. It is now appraised by the bank as being worth $800,000.
Unfortunately, when he goes to the bank to get a loan, the loan officer tells him that the bank has changed their underwriting guidelines and they are now only willing to finance 70% of the appraised value of the property. Now, he is only able to finance $560,000. The problem is that he still owes just around $800,000 on the property. The difference between $800,000 and $560,000 is $240,000.
Unless the apartment building owner can come out of pocket to pay this additional $240,000 to the bank then he will eventually be forced into foreclosure. It is safe to assume that many apartment building owners will make the same choice that thousands of home owners have, to walk away from the mortgage and the property, chalking it off as a lesson learned.
This is a windfall in the making. Close to $4 trillion dollars in foreclosure apartment deals will change hands over the next 5 years. There could be thousands of properties, in good condition, appearing on the market at rock bottom prices. Have you seen great apartment foreclosure deals in your area? Do you know where to look?
Learn Apartment Foreclosures
If you would like to seize this opportunity, read “Apartment Foreclosures = Huge Profits,” then join me with Foreclosure and Apartment Industry Expert, Investor, Syndicator and Foreclosures.com Coach Michal Ballard in our LAST Professional Investors Webinar & Call – and now it’s FREE.
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