Results tagged “foreclosure” from boozwatt.com

Last night I listened to a panel of real estate (investors) experts on television. They were discussing the residential foreclosure problems in this country and I was amazed at how, with the exception of one thing, little advise or help was given or touched upon for the distressed homeowner. Even the one thing that I thought could be of some encouragement when someone said to call your bank or lender and see if you can work something out. Although that is a true statement, the truth is that you need to know who to talk to; or better said: you should know who not to talk to.

It has been acknowledged that there is indeed an economic downturn occurring or impending in many regions. We are also seeing increasing volatility in the equity and financial markets. Added to this, is the inflationary pressures that are bearing down on investors. Given this situation, many investors are turning to safer investments. In this context, property or real estate is beginning to get much more attention from investors seeking to cushion the effects of inflation. In countries or locations where property prices have leveled off or fallen and the number of foreclosures is rising, investors have a great opportunity to invest their money in a sector that offers better returns.

Imagine if you were able to purchase your dream home at a fraction of its market value. The good news is, this is no longer a dream. If you want to get the best deals in the real estate market, the most popular option today is purchasing foreclosed properties. These properties are not only of high quality, they are even sold at less than their market value. This is because these properties are owned by the bank because the homeowner failed to pay for his mortgage. So in order to regain what has been owed to the bank, the bank sells the property at a cheap price, giving buyers a great opportunity to purchase real estate.

When you buy a home with a mortgage you promise to repay the loan and back up that promise in a contract by offering your property as collateral. Default on the loan and the lender can legally reclaim the property in order to offset losses that result from your non-payment. Most Americans think of foreclosure as an auction on the courthouse steps, but in reality the foreclosure process begins long before that happens. The auction is really the last event in a long line of legal steps that are all part of the foreclosure.

Foreclosures have been steadily increasing over the past few months in most American cities. Some of the cities with the highest number of foreclosures include Atlanta, Los Angeles, Miami, Detroit, Phoenix and many others. There are many different reasons why homes go into foreclosure. One of the most important reasons today is the day so called sub-prime mortgage mess. This occurred because many banks relaxed their lending guidelines. A lot of people who would otherwise not be able to buy a home were able to buy a home over the past few years because of these relaxed guidelines.

There are countless changes, upgrades, and updates that can be made to any given property. What separates successful, long term real estate investors from the rest is the ability to maximize their resources (time and money), and in turn, their profits. This has become more important due to the relatively thin profit margins available in today’s real estate market compared the margins available over much of the past decade. Thinner profit margins leave a much smaller margin of error. In order to assure a much greater chance of success on a flip property, it’s absolutely crucial to maximize every ounce of your available resources for your flip project. No matter their timeline or their bankroll, investors doing flips always have limited resources because time equals money due to mounting carrying costs, and the more money expended on renovation equals less available profit on the back end. Therefore, it is crucial for each real estate investor to understand how to maximize their profits from a flip project. So let’s get started. You’ve followed the formula here and the tips and suggestions here, and you’ve identified a potential flip property. Now on to the planning stage.

I recently wrote an article elsewhere on the site discussing investment strategy as it relates to finding potential rental properties. In that article I discussed the inverse relationship between rental properties and renovation / “flip” projects, and I received a lot of emails asking for elaboration on the subject. After clearing it with our company’s other lead partner, I’ve decided to answer the call for more elaboration, and describe in detail our company’s investment strategy. While you’ve already learned elsewhere on this site how our company evaluates “flip” properties and rental properties (see link above), this is how we put it all together. When I was starting out in real estate, one thing I looked everywhere for was real world success stories, and how individuals and investment companies got where they were. My thought was, if not necessary, there’s no reason to re-invent the wheel. The problem is, a majority of the time you can only find that type of information in books, and I didn’t feel like having to pay for it. Secondarily, I’ve always wondered, if you’re so good at real estate investing, why are you writing books instead? But I digress. Here is our strategy, free of charge, to the loyal readers of boozwatt.com:

Flipping properties isn’t the same business as it used to be. Even as short as two years ago, “lipstick” alterations (meaning cosmetic changes such as paint and etc.) would yield massive returns. There’s no question that the market has changed, however. Discussions about the changing real estate market are on every news channel, every real estate website, and even within these pages of boozwatt.com. Flipping properties has become more of an art form now. It requires not only the transformation of a formerly ugly property to something of uniformly appealing taste (appealing to uniform taste is harder than it sounds), but also an efficient maximization of renovation dollars. The reality of today’s real estate market means that the margins on flipping properties is smaller. A prudent investor must buy for a good price, spend efficiently on the renovation, and then list below the market price in order to sell quickly and avoid carrying costs, which can become devastating the longer a home goes unsold. 

Today’s foreclosure market is absolutely record setting. Recent results have shown that foreclosures have increased 93% compared to last year. NINETY THREE PERCENT!! That’s insane. This is good news for real estate investors for two reasons. 1) A majority of these properties used to be on the regular market before they went into foreclosure, soaking up buyer interest and padding the inventory numbers, thus the foreclosure process will remove them from the pool, and 2) more foreclosures equals more deals. The second part is the obvious one. More foreclosures equals more deals. Duh. But what isn’t so obvious is the impact. Not only are there more deals to be had, due to foreclosures, but there are less investors to take advantage of these deals. 

The first step in locating a home foreclosure is to find them, a little research and patience, but the rewards are can be well worth the time. The majority of properties in default are easily identified by the first legal foreclosure document that is filed this is known as a "Notice of Default" or a Lis Pendens, in most states. A "Notice of Default", of NOD, commonly used in non-judicial states and the Lis Pendens normally used in judicial states; not all states are the same and some have their own laws and regulations.

We all remember the heady days from late 2003-2005. It was a market where, despite the realities, just about anyone could get into the investing or purchasing of a new home without really making all the motions necessary to protect themselves from the "worst case scenario. But just like common rules of economics dictate, markets with high profitability soon will get flooded with competition. Unfortunately, millions of innocent families got swept up in the rush, either buying property that had low "teaser" rates, or just plain buying above market price, sometimes both. Lenders point fingers at their financial pools and investors, many pointed the finger at Wall Street, real estate brokers, underwriters, and homeowners alike.

As you probably know, a foreclosure is a legal proceeding in which a bank or lender sells a repossessed piece of real estate due to the owner's inability to make scheduled payments on the mortgage or deed of trust. Banks and other lenders typically consider a mortgage to be in default when several months have gone by without payments having been made. Now despite being a dreaded word, a foreclosure can actually be extremely fortuitous for those looking to invest in real estate or just to buy a house to live in at discount. The foreclosure process is a sophisticated process that is comprised of three main stages, each presenting a bargain buying opportunity. This article specifically discusses the first stage of foreclosure known as the pre-foreclosure stage, considered by many real estate investors and other professionals to be the best time to buy a foreclosure.

The most important issue in the entire foreclosure process is that of how long it will take from the first payment being missed to the eviction of the homeowners. It is also an issue that most foreclosure victims have no idea about, and spend more time worrying about than any other aspect. Without knowing if or when the process has started, when the sheriff sale will be conducted, and how long they have after the auction until they are removed from the property, homeowners feel they have little control over the situation. Having a firm idea of the time frame of the foreclosure process, though, will allow them to put together reasonable plans to stop it with the time they have available.

Talking about foreclosure real estate can be hard enough without even entering the market. That's because foreclosures tend to have their own language, employing many obscure words originating in government housing legislation and real estate law. Without a background in these areas, prospective investors won't be able to decipher even the simplest foreclosure contract. This article lists some of the more common foreclosure-related terms as a reference for people interested in this lucrative market.

Aside from the implementation of your actual business strategy, there is nothing more important than being aware of, and utilizing, one of the greatest provisions of the Internal Revenue Code -- the 1031 exchange. The 1031 exchange, named, intuitively, after its provision in the Code itself, allows for the deferral of income tax on gains from property held for investment purposes by allowing those gains to be exchanged for similar (“like kind”) investment properties. I highlight “deferred” because it doesn’t allow an investor to avoid tax on the gains, but it allows tax on those gains to be deferred for as long as they are being held in a qualifying property. The great part about the 1031 exchange is that you can use it over and over again, as many times as you want. Therefore, you can defer taxes on your gains theoretically for your entire life. There’s also the potential, with some creative tax planning from your accountant, to never have to pay these deferred taxes, if you set it up in a way to pass it on to your children or even a charity (don’t quote me on this -- definitely check with your accountant on this one). Either way, the 1031 exchange is the single greatest gift the government has ever handed real estate investors. So, let’s see how it works:

Congratulations to Stewart Hsu, at stewarthsu.com, the winner of the October 17 article submission contest!! The article offers some very good advice on the beginning stages of real estate investing. His article, “How to Get Started Investing in Real Estate,” is featured in full below. Enjoy!

An extensive and well diversified portfolio of income generating real estate is a must for the well-rounded, successful real estate investor. While asset building itself comes from the profits garnered through various forms of flipping including investing in foreclosures, the inevitable end game for all real estate investors should be the funneling of those profits into an ever increasing holding of rental properties. For example, the strategy our company uses is a rather aggressive blend of asset generation through flipping various properties, and then a direct funneling of a set percentage of those funds into income generating rental properties. The percentage itself changes with the market.