Investing In Forclosures

Tuesday, October 16

 Foreclosure Investing, one of the best ways to make money in real
estate. If you don’t understand this yet, don’t worry – we will work all
of that out here.

Let me say first that real estate is an amazing business. There are
all kinds of ways to make a living, or investments in real estate. You
can work full time, or part time – and still be very pleased with the
income you receive. There are narrow niche markets in real estate, and
wide markets in real estate. This post is an introduction to a niche
market of residential real estate, investing in residential
foreclosures.

What is a foreclosure? A foreclosure is a property
that was once owned by an individual who lost the property for some
reason. Typically, the individual loses their property due to financial
woes. Some reasons why homes go into foreclosure is known in real estate
as “The 3 D’s”: death, divorce, and debt.

The typical process of home ownership goes something like this:

Couple A decide to buy a house. Together, they come up with a down payment and finance their house.

Once the house is financed, the original lender will typically sell
their mortgage on the secondary mortgage market, to another buyer. The
first lender makes money, and sells this note to decrease their risk
(borrow default).

The buyer who purchased the original note now holds the
mortgage. Currently, Fannie Mae and Freddie Mac are the largest buyers
on the secondary mortgage markets.

If the home owner defaults on their mortgage (non-payment), the
company who owns the note will usually begin the foreclosure process
after 3 months of delinquent payments. This puts the home owner in a
bind, because of many stipulations, such as the acceleration clause,
which gives the owner of the note the legal authority to call in the
entire note once the payments are delinquent. If the home owner can not
come up with this amount, than the house will be taken from them and
sold as a foreclosure.

If you have been watching the news lately, you will notice that right
now there is an all time high foreclosure rate in the United States. In
fact, 2011 is expected to have the most foreclosures ever on the market
– over 1,200,000 houses are expected to flood the market.

Other media outlets talk about homes being “underwater”, which means
the owner owes more than the house is worth. This induces the dilemma of
the homeowner walking away from their mortgage, and taking a hit on
their credit score for the next few years. Each individual case is
different, and homeowners facing foreclosure have more options today
than ever to resolve this type of issue.

What does this mean? Well, this type of news can be
good – or bad, depending on where you are in your life, and what you are
trying to accomplish. If you bought your house in the 90?s, the market
was a lot different than what it is today. You could have paid top
dollar for the house, waited for a few months, and it
would appreciate in value over that time – tremendously. This is what
got many states in trouble, artificial inflation of home values.

This can be great news for first time home buyers. Interest rates are
tremendously low, and home prices are dropping. Currently, 1 in 4 home
sales, or 25% of US home sales are a foreclosure. Foreclosures sell
anywhere from 95% to 60% of fair market value, depending on the state of
the house. This is where foreclosure investing comes into play. You can
buy a cheap foreclosure, and then fix it up – and sell high.

Flip This House on A&E shows crews from all over the country
who utilize foreclosure investing and pre-foreclosure investing
to renovate, and sell. They are able to do this because they are buying
these properties at pennies on the dollar. Many people watch these shows
and see the entire scouting/purchase/rehab/sales process in an hour
show, while the investor makes anywhere from $20k – 150k.

Real estate investors know that although this makes great TV shows,
this is hardly the case in residential real estate investing. Typically
investors look at over 10-20 properties, before they decide to make an
offer on one. These types of shows do not show this process. There are
other costs associated with fix & flip deals that are not shown on
these shows, that will need to be taken into account as well.

Hopefully we can give you a realistic idea of how much you can make
depending on what you can put in. There are many ways to make money in
real estate. I am currently focusing my efforts on foreclosure investing
due to the fact that there are so many in the US right now.

I will be creating YouTube videos on location to help out people who
are new to real estate investing. My first video is an introduction to
foreclosure real estate investing (fix & flip or buy and hold). My
company focuses on the fix & flip strategy.

As a real estate investor, what you should take from this is:

  1. Banks DO NOT want to hold real estate. They will be more inclined to negotiate with you.
  2. Home owners facing foreclosure are motivated to sell. They want to
    sell fast, because they are on a time crunch. This is typically called a
    pre-foreclosure or short sale.
  3. Typically foreclosures are in bad shape (interior and exterior). The
    house isn’t doing anyone any good. Banks don’t want it, it is making
    the neighborhood look bad, and it drives down other home values which
    are being sold.

Hope this helps anyone looking at investing in foreclosures.
Foreclosure investing has brought many people riches, and
will continue to do so.

This blog post should get you started in the real estate investing world, and hopefully save you some money.

See the original post: Investing In Forclosures

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