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As foreclosures increase, investors seek opportunities
By Caroline Kim | Medill News Service

Mary Lee Kropp, from left, Agnes Biondi and Jill Hale work during an auction of foreclosed homes in November at the DuPage County complex in Wheaton.

 

Tanit Jarusan | Staff Photographer

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Published: 2/15/2008 12:20 AM

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As Chicago-area foreclosures rise, more real estate investors are looking to profit from the repossessed properties.

"If you're an investor, this is the best real estate foreclosure market in 13 years," said Christian Chase, president of Naperville-based Chase Real Estate. "If you're a homeowner, it's the worst market in 13 years."

Chase began a foreclosure-investment operation in 1995. It has sold more than 400 homes and today rents out about 200, growing by about 40 to 50 homes each year with a database of about 1,000 clients.

In Cook County there are currently 133,476 pre-foreclosures (or foreclosures in process), 31,904 auctions and 38,793 foreclosed properties held by lenders, making it ripe for foreclosure investing, according to Foreclosures.com, a national foreclosure investing Web site owned by Fair Oaks, Calif.-based Tahoe Wheaton Inc.

More than a year ago a Chase client purchased a foreclosed home in Forest Park from Chase Real Estate for $119,989. The client then used Chase's rehab team to repair the home for $12,000 and afterward worked with Chase to resell the home for $160,000.

Another client last fall purchased a home in Plainfield from Chase Real Estate for $169,301 and used its rehab team to repair it for $6,000. Then the client used Chase's leasing team to rent the home for $1,350 a month. The client will later have the property re-appraised and will refinance it, taking back enough cash to recover the down payment and the rehab cost, Chase said. Then the search for another foreclosure starts.

A typical investment in a foreclosed property can yield about a $20,000 to $30,000 profit, but it can be much higher depending on the property, said Doug Crowe, CEO of Springboard Group Inc. in Lombard.

T.J. McKinney, investor relations representative for the Schaumburg-based Illinois Foreclosure Listing Service, or ilFLS.com, estimated about 5,000 to 7,500 foreclosure investors exist in the Chicago area.

"I believe the market has improved," said Joshua Blank, who runs Wrecks to Riches, a real estate foreclosure investor program based in St. Charles. "Today, we're getting properties cheaper."

Blank began foreclosure investing occasionally in 2000 and then took it up full time in 2004. He has totaled about 150 foreclosures.

Crowe said the actual number of investors is small compared to the number of people interested in the market because it's not an easy task and takes education to be successful.

Investors can buy a property before foreclosure, buy it at an auction, or get it from a bank or other lender after the auction, which Blank says is easier. Pre-foreclosure purchases are harder to close, he said.

The Springboard Group offers assistance to people with pending foreclosures and teaches others how to invest in real estate, enrolling about 100 to 150 students a year. Chase Real Estate offers assistance in finding foreclosures, financing, rehabbing and then selling or renting the property.

Banks contact Chase and Blank frequently about foreclosed properties. An investor may buy a home directly from a lender or sometimes Chase Real Estate buys a property from an auction before selling it to an investor. Either way, Chase receives a commission.

Blank said when he invests in a foreclosed house, he seeks one that's worth $50,000 more than what he's paying for it. The house should require only cosmetic rehabbing and not much structural change because that can get complicated with municipal regulations.

"Most investors buy and sell, but my investors and myself buy and hold properties," Blank said. Buying and holding, Blank said, helps to raise the profit, and during the holding period investors can rent the property to create cash flow.

McKinney agreed, saying the foreclosure market is like a microcosm of the overall real estate market. "There are great deals out there," he said. "But you can't resell it right away because the market is slower."

Blank currently manages about 31 properties and thinks it's better than a 401(k) and other investment vehicles.

"I don't have a single stock, just cash and houses," Blank said.