Well, the economists missed their September Housing Starts Estimate and revised their August numbers down, again confirming my previous article’s conclusions that continued monthly increases in residential home sales are due to the increasing number of foreclosures and REO products made available by trusts and banks. .

The growing inventory of distressed homes on the market continues to send shock waves through the economy; but it also gives investors a longer and broader window of opportunity to get involved here.

Despite efforts by the Obama administration’s federal initiatives to stem the rising tide of foreclosures, some 291,000 foreclosures were reported in February, the third-highest monthly total since RealtyTrac began tracking the data in 2005. Such filings They include NOD (Notice of Default) notices, auction notices, and bank liens.

Over the last three years, more than 4 million homes in the US have been foreclosed on.

Whether you are an investor looking to purchase a rental property, an investor looking to buy, renovate and resell property, or a homeowner who is ready to retire and move to a more affordable location, foreclosed property pricing is ready now. , which means it’s good for you.

Buyers can often purchase such homes at a discount of 20 to 60 percent of their potential market value.

“This is a market where someone who does their homework can save a lot of money on a home purchase and create a good long-term investment opportunity,” said Rick Sharga of RealtyTrac.

If you are looking to renovate and flip, you need to do your homework on the property first. You must watch recently closed sales possibly within the last 3 months, say within a half mile radius for very similar properties. You should have a good building inspector give you an accurate estimate of the cost of repairs to get the property back in working order; here you will not have the appreciation of the market, only the quality of the purchase and the awareness of the costs of repairs and remarketing expenses for your benefit. Keep in mind that most foreclosed properties are returned to the bank due to financial problems. Therefore, repairs and maintenance are generally not maintained, plus rents are not paid.

But if you’re in a ‘buy and hold’ position, intending to rent out your property for the rental income, or hold on to it until the housing recession subsides, the market is ripe for choice in that regard. Later you will receive the market bounce rewards that will surely come after this flood goes through the system. Make no mistake about it, there will always be a foreclosure market to watch and participate in, just like there will always be an unemployment number to watch; It turns out that both are much larger during recessions.

“Investors need to be cautious and have a long-term strategy,” says March. “I don’t think we’ve seen the end of this economic downturn, so you have to be in a financial position to be able to pay the new mortgage, even if you lose your job.”

That means buying in a place where prices are low and demand for rental properties remains strong.

According to RealtyTrac, Nevada, Arizona and California lead the nation in foreclosure rates, while Sunbelt cities including Las Vegas, Cape Coral-Ft. Myers, Fla., and Stockton Calif., have the highest number of foreclosures. For investors, Sharga says, an unstable housing market and a growing inventory of foreclosed homes could mean higher potential returns down the road.

“If you combine a bear market with the discount rate you’d be seeing with the typical foreclosure, that doubles your chance of success when the market comes back,” he said.

traps

However, the process of buying foreclosed properties is also fraught with risk.

Without a proactive investigation, an investor could end up buying a home with an outstanding tax or other lien, for which you become responsible.

“I’ve even heard of people going to an auction and buying a second mortgage instead of their first and thinking they got a great deal on a house,” Sharga said.

Before making a purchase, investors should do their homework carefully, which means hiring a contractor to complete a home inspection for major issues like structural damage or costly mold.

Investors also need to secure as accurate a figure as possible on the number of renewals likely to set them back, a big drag on earnings.

Finally, buyers should consult a real estate agent for information on comparable home sales in the same neighborhood, which will help determine how much the home could ultimately sell for at resale.

They should also take note of how long listed homes have been on the market, both for rental and resale.

“Many foreclosure investors won’t buy a property unless it’s discounted by at least 30 percent,” Sharga said. “That’s because you’ll usually need to do a rehab to bring the property back up to neighborhood level, you’ll probably have to finance it for a short period of time, and it’ll cost you some money to market the property.”

It may not sit well with you to cash in on someone else’s misfortune, but keep in mind that when you buy a distressed property you’re not just doing your investment portfolio a favor.

By reducing the inventory of available homes, you are also helping to stabilize the residential real estate market which, in turn, will boost the troubled US economy.