Cash In On Foreclosures

By Author: Tony Starks
Total Articles: 2
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Real Estate is an excellent investment
Real Estate is an excellent investment because its always in demand and everyone has to have a roof over their heads. Real Estate is a comodity just like anything else in our society and when the prices get too high (like the stock market) it adjusts down to where the majority of buyers believe that there is value. So when Real Estate (R.E.) is high, few buyers buy and when R.E. is priced below the comparibles more people buy. If you buy and your an owner occupant and you plan to stay in your home for about 5-10 years, the market 'ups & downs' don't really concern you. However if you are a speculator and you buy near the top of the market and the values peak and turn down, you could be holding a commodity that is worth much less than what you payed for it. (Which is not a very good short term investment)
Exit strategies when buying a property are very important. In our recent market many speculators and even home owners have extended them selves by buying expensive properties with the expectation of continued appreciation. Owner occupants with poor credit and no money ...
... down used short term arms (adjustable rate mortgages) and went out on the limb to get involved with property that they also hoped would continue to appreciate, and so because of all the speculation we have the highest amount of foreclosures than ever before. Most home owners thought they they would be in & out of their property in a short period of time, thinking they would have sold the property before the interest reset to a higher percentage. However because property values went down the property owners are not able to sell their properties, their arms left them with higher interest rates and larger payments that they can't meet. Now home owners who actually own property and have lost value are not so worried because they still have a roof over their heads. Home owners in this situation just plan on staying put until a couple years pass and the value comes back. Now the circumstances have left first time home buyers and investors with an enormous opportunity to make some money off of foreclosures. Its a given that money in Real Estate investment is made when you buy the property, its a great time to buy it at a discount with very low interest rates. The only thing that is challenging us right now is the exit plans, and so with the amount of present inventory its important that you buy at a low price as well as sell at a low price compared to properties in your area. 'Quick flips' sometimes take a little long to sell, but its always best to price a property at a price thats less expensive than the other properties that are going in your area.
Foreclosures have been around forever, only now there are just more of them. (Its like the buzz on the street) Seasoned and novice investors want to invest in foreclosures. In 2004 the number of foreclosures was 2% of the total sales in USA, In 2008 the number of foreclosures was 30% of the total sales in USA. Can you see why there is so much interest in foreclosures? The reason why they are so attractive is because if you are going to be successful in R.E. you need to work with a motivated seller, and there are not any more motivated sellers who are going to loose their homes because they are not making payments. Prior to this point foreclosures were typically a result of divorce, unemployment, and medical bills. In addition to these recurring reasons, today they are also a result of the adjustable rate loans being reset from a low I.R. to a high I.R. (interest rate). Which is making the payment higher and most likely unaffordable for the home owner, at the same time the property value is dropping and leaving no equity.
Now foreclosures are divided into 3 phases, the first phase is the pre-foreclosure and thats where the home owner is still in control. If they have any equity you can work directly with the home owner, however if they do not you would want to do a short sale. The second phase is the auction, this phase is usually reserved for the experienced investor because of the financing, the property inspection, and the attached liens. The third phase is what we call the REO, (Real Estate Owned) this is where the property has not been sold at the auction and the lender is going to get it back. This is the safest way to buy a foreclosure because you can inspect the property before you buy it. Now remember this, NOT ALL FORECLOSURES ARE A GOOD DEAL. Its always important to act like a R.E. detective in order to get all of the facts about the property before you buy. This is a very important part of the process, the more you know about the deal the better its going to be for YOU! Its really all about the numbers, meaning the number of properties that you have to choose from, the amount of research that you do, the cost & expenses V.S. the profits to come, and the number of offers you make. The foreclosure process can take any where from 21 - 120 days or even longer. If you are in a state that has a shorter time frame to do your homework, you need to find the most efficient / fastest way to make a decision about each property that you are interested in. Remember that a foreclosure is an opportunity!
People always ask, why invest in foreclosures? Its simple because foreclosures are at an all time high, which presents an outstanding opportunity. The future trend for finding good deals is up because borrowers are defaulting on their sub-prime loans, arms are resetting to higher percentages, property values are falling, notes are becoming due, unstable money / security markets are causing financial losses, and the economy is uncertain (which leads to unemployment). There is ALWAYS a steady inventory of new property, and foreclosures are not really understood very well or worked very well. Most people do not understand the process because there is minimum GOOD information that is available to the uninformed public. Some properties can be purchased for little of you own money because banks do not want properties so they want to get rid of them as quickly as possible. Homes are foreclosing for a number of reasons, Loss of job by one or more home owners, job transfer, out of state / out of town owner, financial crisis, need for immediate cash, health or family problem, business failure, divorce between couples, balloon payments, death of the property owner results in payment default. Also adjustable rate mortgages can increase quickly in times of high interest rate in result of the property owner unable to make the payments.
Now lets talk about pre-foreclosures, many times you can catch a situation before the property has gone up for auction (this is called pre-foreclosure). The property is in default and usually the mortgage payments re several months behind. The property owner may have no means of curing the default, yet the time is ticking towards the time the auction will take place and everything will be lost. Now given that a foreclosure on a persons credit record is the single most devastating thing that prevents any future borrowing for years to come. A home owner in pre-foreclosure should be very happy and eager to work with you, without your help they may not only loose their home but their credit might also be destroyed. A fundamental key to making profit in the foreclosure market is understanding why the property went in to foreclosure. Perhaps the owner just had a temporary cash shortage, you may be able to help them and take an equity position in the property in return for rectifying the situation. Or the owner may be financially devastated and just wants to dump the property before their personal credit is destroyed, you could help solve their immediate problem and give them a new start.
What happen to create this whole situation? Well people with bad / poor credit were given loans when they should not have gotten them in the first place because they could not afford them. In California they were actually qualifying people 22X they're actual annual earnings, instead of the usual 3X. They were hoping that the appreciation would continue and get out of the property with a decent amount of cash, to use for a down payment in a more affordable market. However the market lost its steam, property values dropped, and buyers were stuck with a property that was usually worth less than what they bought it for; so by the time their loan reset they could not make the payments. Investors also bought homes, hoping they could ride the gravy train and earn a lot of money for being at the right place at the right time. Many of these people that are actually walking away from their homes have good credit but they just can not afford the payments. What they are thinking is, why make high payments on a house if it is not worth what i payed for it? Sometimes it takes several years for the actual property value to come back, so they just let their houses go to foreclosure. Which brings us to a great opportunity for the investor who knows what their doing. Every once in a while the planets are aligned and everything is in sync and there is stupendous opportunity, which is exactly what is going on in Real Estate today.
Now lets talk about how to find a foreclosure. There are many sources to aid you in finding foreclosures, hopefully you can find the foreclosure before it has gone to far into the foreclosure process and all possibility of redemption have passed. In todays market its a lot easier to find property foreclosure then ever before, following are a few locations to begin the search (and well be going into much more detail in other courses of this product). They are classified section in newspapers, FSBO (for sale by owner), IRS auctions, Bankruptcies, County Courthouse and this is where it all starts.
This leads us to your assignments, now these are assignments are things that you want to accomplish during the first week (this is just the overview) By the time your through with all of the courses in week 1 you should be able to identify which phase of the foreclosure market you want to work. Also decide how you are going to find the foreclosures and identify at least two exit strategies, so just remember that those are the things that we want you to accomplish in the first week after going through all of the assignments for week 1. www.foreclosemorehomes.com fore more info on this course.
Tony is a member of "http://www.foreclosemorehomes.com"> Which is a step by step guide teaching others how to benefit from foreclosures. http://www.foreclosemorehomes.com . Free trial is available for anyone(at)foreclosemorehomes.com .