Economists Miss Ther September Housing Starts Estimate And Revise Down August!

REAL ESTATE: Weighing In on Foreclosures

By: Steven Loehr 10/20/2009

Well the economists have missed their Septembers Housing start Estimates and revised down their August numbers, once again confirming my previous articles conclusions that the continued monthly increases in residential home sales are due to the growing numbers of foreclosure and REO products made available by Trusts and Banks brought into the market..

The growing inventory of distressed homes on the market is continuing to send shock waves through the economy; but it’s also providing investors with a longer and wider window of opportunity to get involved here.

Despite the efforts of the OBAMA Administrations federal initiatives to stem the rising tide of foreclosures, some 291,000 foreclosure filings were reported in February, the third highest monthly total since RealtyTrac began following the data in 2005. Such filings include NOD (Notice Of Default) default notices, auction sale notices and bank repossessions.

Over the last three years, more than 4 million U.S. homes have been sent into foreclosure.

Whether you’re an investor looking to purchase a rental property, an investor looking to purchase refurbish and the resell the property, or just a homeowner who’s ready to retire and move someplace more affordable; the price of foreclosed properties are ripe now, which means it is right for you.
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Often, buyers can purchase such homes for 20 percent to 60 percent off their potential market value.

“This is a market where somebody who does their homework can save significant money on a home purchase and create a nice investment opportunity on a longer-term basis,” said Rick Sharga of RealtyTrac.com.

If you’re looking to renovate and flip, you must really do your homework on the property first. You must look at recently closed sales, probably within the past 3 months, lets say within a one-half mile radius for very similar properties. You must have a good building inspector to give you a precise cost estimate on what the repairs are going to cost you to get the property back into condition; you will not be counting on market appreciation here, only the quality of the purchase price, the cost conscientiousness of the repairs and remarketing expenses will make your profit here. Bear in mind that most properties going into foreclosure are being returned to the bank due to financial problems. Therefore the repairs and maintenance are not typically being kept up with, in addition to the rents not being paid.

But if you’re in a position to ‘buy and hold’, with the intent of either renting your property for the rental income stream, then sitting on it until the real estate recession subsides, the market is ripe for the picking in that regard. You will later receive the market rebound rewards which will surely come after this flood washes through the system. Make no mistake about it, there will always be a foreclosure market to watch and be involved with, just like there is always going to be an unemployment number to watch; both just happen to be much larger during recessions but always there.

“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 position financially to be able to afford the new mortgage even if you lose your job.” [Mrs. March was specifically referring to the Southern Florida market when making that remark. She is quite the expert in that area and knows it is like quick sand there right now with prices continuing to fall and foreclosures continuing to rise]

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

According to RealtyTrac.com, Nevada, Arizona and California lead the nation in foreclosure rates, while Sunbelt cities, including Las Vegas, Cape Coral-Ft. Myers, Fla., and Stockton Calif., are posting the largest number of foreclosures.

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For investors, notes Sharga, a rocky residential market and a growing inventory of foreclosed homes could mean a bigger potential payoff down the road.

“If you combine a down market with the kind of discount you’d be looking at with the typical foreclosure, that doubles your opportunity for success when the market comes back,” he said.

Pitfalls

The process of purchasing foreclosed properties, however, is also fraught with risk.

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

“I’ve even heard about people going to auction and buying a second mortgage rather than the first and thinking they got a great deal on a house,” said Sharga.

Before making a buy, investors need to do their homework carefully?that means hiring a contractor to complete a home inspection for big-ticket problems, like structural damage or costly mold.

Investors also need to secure as precise a figure as possible for how much renovations will likely set them back, a major drag on profit.

Finally, buyers should consult a real estate agent to learn about comparable home sales in the same neighborhood, which will help determine how much the house might eventually fetch at resale.

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

“Many foreclosure investors won’t purchase a property unless it is at least a 30 percent discount,” said Sharga. “That’s because you’ll typically need to do a rehabilitation to bring the property back up to the neighborhood standard, 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 be not sit well to profit from someone else’s misfortune, but keep in mind that when you purchase a distressed property you’re not just doing your investment portfolio a favor.

By reducing the inventory of available homes, you’re also helping to stabilize the residential real estate market which, in turn, will buoy the troubled U.S. economy.