I’ve taken a cursory look at the possibility of investing in real estate near where I live, with the intent of buying a property for rental. The numbers don’t work well in my favor. I’ve confirmed this with friends experienced with renting their properties in the area; most would not do it again if given the choice. The small potential profit is not worth the extra effort and stress.
To make the numbers work more in the investor’s favor, there’s the possibility of purchasing foreclosed or pre-foreclosed homes. If you can get a significant discount on the price and minimize the out-of-pocket costs required to make the dwelling attractive, there’s a better chance of making a profit. Buying a house in a distressed situation, whether from the buyer in a pre-foreclosed status or from the lender or bank once foreclosed, is not very simple. Auctions are attended by professionals, and the best deals are monopolized by the most experienced investors. It can be difficult, expensive, and time-consuming to break into the elite group of foreclosure investors.
Zillow is making this process a little easier or less expensive for the amateur investor. I’ve been a fan of Zillow for a while. The website, and particularly the iPad application, helps me easily find public information about any property. While driving around neighborhoods in which I might like to buy a house, either for myself or as an investment, I can get an idea about the cost of the home.
The application uses a map and GPS to locate the house of interest, and provides details such as a history of sales prices and Zillow’s own market value estimate of the property. The application also identifies which homes are currently for sale and offers homeowners a chance to advertise their homes to potential buyers without officially putting them on the market. Of course, I don’t actually use the iPad while driving.
Now, the website also indicates when a home is in a pre-foreclosure or pre-market status. This means that the bank has initiated proceedings to foreclose upon the property, but the home is not listed for sale yet. Previously, this information had been difficult to aggregate or has been kept away from the general public by services that require membership fees. Zillow’s new feature brings a wider inventory of potentially better deals to more investors for free.
That doesn’t mean, however, that it’s going to be any easier for amateur investors — those without connections in the foreclosure real estate market in their location — to get better deals. Professional investors find pre-foreclosure deals within a day or two of the public filing, and with cash in hand and experience making deals, are often able to make the most out of the information they have. If Zillow’s information is as slow as two days, the best deals might no longer be available. That doesn’t mean it’s not worth pursuing, because the deals one might find with Zillow might still be better than the deals one might find if you wait for a foreclosure auction.
Zillow’s new development is bad news for companies who profit by charging membership fees to access an aggregation of public information. When a competitor comes in and offers customers the same information for free, the company that charges its customers must come up with a new business model fast or explain how their paid service is worth the price compared to the free service.
To feature foreclosure and pre-foreclosure listings, Zillow has introduced a foreclosure center, making it simple to search just for these deals without other listings cluttering the screen. A search in my ZIP code reveals a surprising number of pre-foreclosure properties within a mile. I don’t have to walk very far to see fifteen homes Zillow has marked as pre-foreclosure.
Without walking around to see these homes, the pricing looks favorable. The estimated foreclosure prices seem to be 15 to 20 percent below Zillow’s estimated market value for these homes, putting these properties in the “good investment” range based on that information alone. Of course, if these properties need a significant amount of work, the value as a potential investment decreases.
I’d be interested to hear what seasoned real estate investors think about this new development.
Published or updated October 25, 2012.