THE TIME FOR INVESTORS
Yesterday a story on NPR related the activities of two investors in Baltimore. These investors enthusiastically spoke of their purchasing as many properties as possible at discounted prices, distressed properties which the investors were renovating and then renting out. By doing so they are providing needed decent rental homes. Eventually when the real estate market turns around they plan to sell some of these homes. It isn’t lost on them that while home prices have declined, rents have gone up.
Much the same is true here in central Virginia. Foreclosures and Short Sales have made many homes very affordable. They are sometimes in distressed condition. There are investors who have made a profitable business buying up homes cheaply, renovating, and then selling those newly made nice homes at an affordable price that is still very competitive and profitable in the current market. Some of those newly renovated homes are being held by the investor to be rented out and will later be sold when the market turns around.
In these sad economic times opportunity presents itself. Why not seize it?
When a homeowner stops making payments on their home loan, the lender will make several inquiries to see why and try to remedy the situation. However, if the homeowner is still not making their monthly payments the lender will begin foreclosure proceedings. Shortly thereafter the owners will be instructed by the sheriff’s department to leave the property, and depending on what ‘device’ is utilized to foreclose, the lender either sells it on the open market or auctions it off on the courthouse steps. The lender may still seek recovery of the balance of the loan from the now former owner. The former owner’s credit record will be affected adversely. I have helped many people, both those seeking a home and investors, purchase foreclosed, REO and bank owned properties.
Why would a foreclosed property be of interest to an investor? Such properties are frequently priced well below what their market value should be. In other words, such a purchase represents a potentially very good deal for the purchaser/investor.
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When a homeowner is no longer able to make the payments on the loan for his/her home and therefore sells it, but what they net from the sale of the home is not enough to pay off that loan. This situation is called a Short Sale, and because the price the home sells for does not cover the amount still owed, the lender can approve or disapprove the sale. In other words the lender gets to decide how much money it is going to lose as a result of the sale. A Short Sale can take a long time to get from contract signing to settlement, sometimes many months, and both purchasers and sellers need to be patient. After the sale, the lender may still seek recovery of the balance of the loan from the now former owner. In any event, the former owner’s credit record will be affected adversely.
Why is this of interest to the real estate investor? Short Sale prices can be low and therefore offer a good deal.
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And standard sales (where the property is not in jeopardy of being foreclosed upon and is not a short sale) can be advantageous too. People who purchased their home before the housing bubble may have a lot of equity in that home. When putting it on the market for sale they can price it competitively with distressed sales. Knowing the market is what helps to discern these good buys.