People are making more and more real estate investments in the foreclosure market. The economy has rarely seen the type of foreclosure activity that is taking place today and the smart investor is taking advantage of this market. The banking industry has made use of some bad lending practices and therefore the industry is suffering. Mortgage defaults top the list of loan defaults today and this causes many banking institutions to have thousands of foreclosed properties in their inventories.
Although the economy was still relatively strong, borrowers were tempted by variable-rate loans and subprime loans, and many took advantage of both types of credit facilities. A subprime loan is a financial loan vehicle made available to prospective homebuyers who could not qualify for a normal home loan. These loans are charged a higher than normal interest rate to reduce risk to the lender. Variable rate loans were taken out so the borrower could take advantage of a lower monthly mortgage payment. But when interest rates rise, as we’ve seen, the mortgage suddenly becomes unaffordable. Factor in the fact that food and gas prices have risen and throw all of these factors into the mix and you will see why the foreclosure rate is so high. In reality, it is the bankers and mortgage brokers who are responsible for this huge mess, and the government seems to be bailing out these big companies while the man in the street is left to fend for himself.
According to some new resources, foreclosures are up 50-65% over recent years. The highest levels of these are being seen in the California, Nevada and Florida metropolitan areas. This has driven home prices to an all-time low and buyers are taking advantage of bargain-priced real estate investments. There is always some kind of opportunity available in a crisis.
Due to the foreclosure crisis, it is now more difficult than ever to obtain credit. People in the US already have far more debt than they can handle, and banks are tightening their lending policies. Home sales are down, but apparently not in the foreclosure market. More buyers are targeting their investment practices at the foreclosure market. Real estate has always been a wise place to invest money for good returns and big profits. As more notices of default are issued, foreclosure activity increases and bank repossessions skyrocket.
Never think that buying a property from someone who is going through foreclosure is a bad thing to do. If you can save the property owner from foreclosure, you will also be saving your credit rating. The foreclosure process is a seriously complex procedure that damages credit ratings for many years. Many homeowners in foreclosure are happy to sell to buyers willing to prevent this from happening, and will certainly live to fight another day.
Purchasing a property from someone facing foreclosure can save your credit rating.
But before you invest in foreclosures, know this:
1. Market value
In these rapidly changing markets, it is crucial to know the market value of any property you plan to invest in. The difference between its market value and what you pay for it will determine whether you can make a profit.
2. The Law
You don’t want to run afoul of the law. Check with your attorney (and probably your accountant as well) to make sure the deal you’re structuring is legal in your state.
3. Cash, Moolah, Money
Money is needed to buy a property. If renovation is necessary, money is needed. Maintenance requires money. Money is needed for ongoing payments to maintain the property while you renovate or sell it. It takes money to sell it for advertising and commissions. You got it. Does your partner have it? Show me the money! Or at least make sure you know where it is.
