Opportunities in Distressed Luxury Homes?

According to a recent report from First American CoreLogic, distressed properties made up approximately 29% of all U.S. home sales in January 2010. REO’s rose to 22% of the homes sold, which was an increase from 19% in December 2009. Short sales were also on the rise in January, they accounted for 8% of the home sales as opposed to 7% in December 2009. If you add all those together, distressed sales made up 59% of the home sales in January. Average sales prices were $247,700 for non-distressed sales, $141,900 for REO’s and $215,300 for short sales. Real estate experts are predicting that the distressed sales will continue through 2010 and into 2011.

High end properties are also expected to be the next wave of foreclosures. FirstAmerican Corelogic reported that in 2009 there were 1,312 homes valued at more than $5 million that were in foreclosure or facing foreclosure auctions. Just for February 2010, they reported 352 homes were facing a foreclosure auction.  According to a survey from FirstAmerican Corelogic out of 1,700 homes valued at greater than $4 million across the nation, 14.8% of mortgages were 90 days or more in default on their mortgages as of January 31, 2010. Those numbers are almost double of the 8.7% of homes with mortgages less than those that were also past due. Even if $4 million plus range more than you want to invest in, there are plenty of luxury properties in the $1,000,000 plus range as well.  Although luxury high end homes are more difficult to sell because there are fewer buyers in that price range, if you can pick one up at an auction, it may be worth your effort.

Turning Your High End Foreclosure into a Vacation Rental Home

Luxury homes located in or near vacation destinations such as Florida, California, Arizona, Nevada and Colorado are perfect properties to use as vacation home rental properties.  You can rent them out short term for higher prices than a yearly rental. You will have to crunch the numbers to make sure it is profitable for you. Also, be sure to check any homeowner association rules if your property is governed by an association to determine how many times a year you can rent the property or if there are any restrictions on rentals. Some associations do not allow the owner to rent the property for at least a year or two. You may want to use the property as a vacation home for yourself during off season.

Vacation home rentals require property maintenance as well. If you don’t reside nearby, you may need to hire a concierge service which manages the property, takes care of small maintenance items, cleans it and provides guests with concierge services. A local Realtor can probably help you find a concierge service and you may want to also consider working out an arrangement with the Realtor to show the property to potential renters for you.

Before you decide to invest in a high end foreclosure property, you should have a plan as to how you are going to use the property. Do your due diligence and run the numbers to make sure your plan makes financial sense for you.