It seems like every new investor in town has been told that the secret to making fast money in real estate is to buy Portland foreclosures and flip them — fix them up if necessary and sell them quick. I guess the underlying theme is buy cheap and sell fast for a profit. Can’t argue that. But bank foreclosures are not the land of milk and honey they used to be, and chasing them could kill your business and your finances quick. I’ll explain why that is, and then I’ll also give you a couple blockbuster “secret” strategies to get out of the trap if you’ve been caught in it. You’ll never hear these from any late-night, infomercial. Let’s get at it.
The Market in Portland Foreclosures
You’ll hear this from me often, and it’s just as true here as any other time: Portland is not like every other city. I’m talking foreclosures now.
For a long time Portland experienced a very mild increase in property values that actually fell behind the appreciation curve of many other major cities through the 70’s, 80’s and into the boom of the 90’s. And because overall cost of living was pretty well in line with income, foreclosure rates were also behind many of those cities.
What was true however was that a small segment of the Rose City’s real estate investor base discovered there were deals to be had when Portland foreclosures went to the courthouse steps. Now, we’re not going to get into a primer on the whole process of bank foreclosure here. Suffice to say that after the final legal step transferred ownership of the defaulted property to the bank, the bank did its level best to get rid of that hot potato immediately. It would often attempt to sell the property within an hour of taking ownership, in an open bid auction right outside the courthouse.
And because banks were not – and are not now – in the business of property management, they were often willing to let properties go for just what was owed on them. Because many Portlanders at that time paid on their original loan until it was paid off, those courthouse-step investors often got Portland foreclosures for pennies on the dollar. It was not unusual to get a house discounted by 40%, 50% or more off the regular market value. Nearly anybody could make money with an opportunity like that, and many did. It was the heyday of Portland foreclosures investing.
But all things must come to an end, and so did courthouse step deals, for several reasons:
- Portlanders got bit by the bug of the continuous refinance to pull out cash or reduce their monthly payments, meaning loan values – and hence, minimum bids – were much higher
- Every investor and their brother started hearing about the deals at the courthouse, and a massive influx of bidders shot up auction prices, making foreclosures much less palatable, and often, entirely unworkable
- Property values exploded and kept on exploding from the late 90’s to 2007, transforming other avenues of investing that were merely marginal before, to massive cash opportunities like the foreclosure heyday
Like a hot, cloudless Portland summer, the season for great foreclosure deals has passed, and won’t be seen again for a long time.
But many new investors continue to hear the late-night Pied Piper playing his foreclosure riches tune, and they continue to flock to auctions. They frustrate themselves because they can’t get good deals. Some get so deal-desperate they pull the trigger anyway and buy badly. In most cases, the results are disastrous.
That last paragraph may sound like I was being pretty harsh to gurus and new investors. If you know me, you know that I don’t have a problem with gurus (national real estate speakers), or new investors, or foreclosures. But you mix those three together and it’s like combining fuel, air, and a spark.
Explosion will follow.
I’ve gotten caught up in deal desperation, and overwhelming excitement. I’ve bought on reflex. I’ve gotten myself into situations, or seen close associates or good friends in situations. I’m not judging. I’m empathizing.
And if you or someone you know is struggling with this type of situation now, I want you to know, there is hope. Sometimes you can turn that stressful situation into a success story. Let’s talk about it.
How to Buy Portland Foreclosed Homes at Full Retail and Still Make a Profit
With 12 years as a successful investor and now teacher, my focus is finding properties with equity. Equity gives you choices. The more equity, the more choices, and the more money you can make; up front, over time, and at the closing of the sale.
But there are times when you can find Portland foreclosures, buy the properties from auction at full retail, and still come out ahead. Actually, it doesn’t even matter how you bought the property; it could’ve been a purchase of a standard RMLS-listed home. The key is in understanding the potential hidden in the property itself.
I’ve identified at least five different ways to invest in Portland foreclosures or other real estate and still make a handsome profit, even when you buy at full price. Here are two:
- Buy a home on a lot large enough to split off part of the lot and sell it as its own lot
- Buy a single family residence on a lot zoned for multiple dwellings, and convert the home into a multi-tenant income property
Split the Lot
Portland and its outlying areas are always trying to increase population density by getting more people into the same space. The cities do this by changing the zoning. For example, the City of Portland originally zoned 10,000 sq ft per single family home in certain areas. As time passed, it changed the requirement to 7,000, and later reduced it even further in AREA to 5,000 sq ft per lot.
That means that if you buy a house that is positioned on one side of the property, without having to hammer a single nail or lay a single pipe, you can apply with the city to get a lot line adjustment or a full segregation, so what was once one home on one lot, is now one home on one lot, and an extra lot. From here you have all sorts of possibilities. Here are a few:
- Sell the home and lot separately and make a quick-turn profit
- Sell the lot and rent or lease-option the home for up-front money, rental income, and a payday later on
- Sell the home and keep the lot to build another home on, increasing the value of the lot even more
All it takes is a couple thousand dollars and six to 16 weeks in many jurisdictions to split off the lot. With a little guidance from the City, you can do this on your own the very first time. Find the right property, and you can easily generate a five-figure paycheck.
Expand the Dwelling to Fit the Zoning
In many areas of Portland, corner lots were or are now zoned for duplexes. So if you find a house of the proper size and configuration, you can simply add in an additional front and back door and some additional plumbing and wiring and possibly a couple meters. Add or reconfigure a few walls and rooms and voila! You now have a duplex that can be rented, lease-optioned, or sold as an income property, significantly increasing its market value.
Obviously, this one entails more work all the way around, and like any construction project, has many factors that can affect profitability. If you’re not used to engineering, permitting, construction, construction finance/hard money/private money, marketing and/or property management, you might seek the help of an experienced, qualified local investor. But again, this is another way to potentially walk away from a full retail purchase with a five-figure paycheck and a boatload of street cred.
So, grab a pen or open your text editor on your computer and write down what angle you’d like to take with a property you own or an associate owns right now. And then take action.
If neither of these options will work in your situation, write down your best imagined scenario, your ideal exit from the property. And then connect with someone who can provide feedback, or possibly partner with you, to get you out and maybe even get you paid. So don’t get locked into Portland foreclosures or other low-margin properties when there are many opportunities for you to turn properties into cash or cash flow. Take heart. Take action. Make money.
How to Invest in Real Estate Portland
Portland, OR 97225