Bad Real Estate News; Good Investment

Are you getting ready? It’s coming. One of the best investment opportunities in years. This is not late- night infocommercial fluff. Here are the facts you can take to the bank in 2007-2008.

[tag]Foreclosures [/tag]are rising. A lot of people have been proclaiming that for some time. What’s different now is the sheer number of them.


Are you getting ready?  It’s coming.  One of the best investment opportunities in years.  This is not late- night info commercial fluff.  Here are  the facts you can take to the bank in 2007-2008.


Foreclosures are rising.  A lot of people have been proclaiming that for some time.  What’s different now is the sheer number of them. 


Looking to California, where most trends seemingly start, we see  many homeowners already in default in three counties.  Those counties are Merced, San Joaquin, and Stanislaus.  In fact, according to Realty Trac, 1 in 214 did not make their house payments in October.  The national average for default  is usually 1 in 1,000.


The three California counties had 1,600 homes in [tag-ice]default [/tag-ice] on mortgages in October.  Let’s really look at that statistic.  That’s running almost eight times the number of defaults for that same area in  October, 2005.     These are the folks who are beginning to get into trouble with the banks.


Since default is the first  foreclosure  step, the news for these homeowners is not good.  And they will have plenty of company.  There will also  be some banks with  colossal headaches too.  As we know, banks don’t like landlording, rehabbing or any  of the daily  chores connected with real estate.  They want out of [tag-tec]bad loans[/tag-tec] quickly  because they don’t want  their books to look bad.  That’s the good news for savvy investors.  


Here’s the formula to watch for.  Adjustable rate mortgages or ARMS’s + little equity=foreclosure. 


Homeowners who bought into the “sales talk” that you can get into a larger house with little or nothing down will generally  be the ones in the most trouble.  That’s because they won’t be able to afford the higher monthly payments, once the real mortgage payments  kick in.


What they had been paying for the first year or so of their mortgages  was what I refer to as an “introductory loan”.  I would compare such loans to the commercials you see on TV for  “ buy now, no interest paid until ____ deals”  for furniture and other big ticket items.   When the real  killer  payments finally are due, they often  give much  more grief than  buyers had  ever anticipated. 


Some homeowners were able to purchase  their  homes for 100 percent, or in some cases, 125 percent of the value.  Smart investors have always taken advantage of such loans because they gave you a good start.  But that was based on strong calculations and a solid escape plan on exactly what you were going to do with  that property.  So the loans themselves, under the right circumstances,  were not the total  problem. 


The biggest  problem was  the misuse of ARMS’s.  Too many new homeowners did not understand that real estate markets fluctuate.  They were not prepared for the down as they watched prices climb.  They got caught up in the hype and sheer exhilaration of a market going to the moon. 


This  mistake that many people made was in  the flawed  thinking  that the market would always be going up.  They had no idea home prices could stop rising or actually go down.  Some of them are still stunned.


The ones who were able to sell quickly did okay.  The market then  was very good so they could get out easily.  Instead of ruining their credit or facing the auction block, they had quietly exited. 


Now  it’s different.  The homeowners  who can’t sell  or  refinance  are the  ones you need to watch for.   Our advice is to learn everything you can about foreclosures and how to buy them now.  If you don’t have the means to get into the new  markets, team up with other investors.  We’ll explore more on how to do that  in later posts.   As the opportunities present themselves  you will be ready. 



Technorati Tags: , , , ,