We are all aware that the economy has taken a nosedive over the past couple of years. Businesses are closing their doors, employees are being downsized, and the current market value of houses has been consistently dropping. Although, the recession is damaging the current market, it does offer a plus side to the real estate investor.
Buying real estate during a recession allows buyers to thrive during a recession. They have the opportunity to make substantial financial growth. Falling prices and less activity in the current market can benefit the buyer in many ways. A recession typically lasts for about two years so investors should think about not just how low the prices will go, but also how much they can invest until it is over.
Upon deciding to invest, you should consider a variety of factors. Realize if each house in question is functional to your particular needs. Buying because you fear the recession will end is not wise. The current market should not sway your judgment in this way. But since prices are typically down by three to five percent, buying does offer many advantages. Buyers stand to pay less for homes, usually five percent of more, during time of distress. In addition, sellers are often more anxious and motivated to sell just for the shear fact that they do not want their houses on the market for too long.
Before investing in a down market, it is critical that you research the comparable housing prices in the area, remodeling records for the home, and any financial situations attached to the home. Websites such as zillow.com or trulia.com are excellent resources for gather such information. The general location and overall condition of the house should also be taken into account.
Timing is everything if you plan to capitalize on the falling prices of houses and property. If you are a seller and you wish to move to a more expensive home, now is the time to buy. The longer you wait, the lower the value of your currently owned home will go. Savings to you on a new house are also available as it is being sold for less. Interest rates are also much lower and are gradually increasing, which is another reason to buy now.
Borrowing cheap is another benefit. Interest rates are very low, and even though banks may not be lending to risky buyers, investors with good credit are welcomed. Foreclosures, Short Sales, and Real Estate Owned (REOs) properties are an excellent way to potentially profit from an investment during a distressed economy. When a notice of default has been filed in public records because the owner has stopped making payments on the mortgage, and a lender has given notice that the house will be sold at public auction if the payments are not made current, the house becomes foreclosed upon. If payments are not made and the house goes to public auction, a buyer can usually purchase the house for the amount of money remaining on the loan. There is substantial profit to be made by only paying the amount owed on the mortgage and the owner’s equity can be picked up for free. One thing to consider though, when going the foreclosure route is that a house being sold at auction is not just a steal. Due diligence and thorough inspection of the house should be done prior to any bidding on any home.
Short Sales or Pre-foreclosures are also an option. These are homes that are in foreclosure but before the property goes to public auction. The lender must agree to accept an offer less than the amount owed on the property. Since the lender agrees to take less money in order to avoid foreclosure, the transaction is better for the investor. REOs are similar to Short Sales, but the lender already owns the house due to foreclosure proceedings. The house has been auctioned publically and did not receive a bid. This offers a benefit to the investor because the lender will usually sell for less than what is owed on the mortgage.
This is the best way to buy because the seller is no longer involved in the transaction. The deal is made between the lender, the seller, and the agents that represent them. At times the agents are not even necessary.
Overpriced homes are another investment opportunity to consider. An inflated price is the number one reason a house does not sell. A home that has been previously overlooked because is has been overpriced, has been on the market for a long period of time, and has not sold because of its price, should be revisited. A motivated seller could lower the price in a hot seller’s market where there are many buyers and less inventory. Offering the seller a sizable earnest money deposit or “Good Faith Deposit,” which is a portion of the down payment attached to the purchase agreement, and a list of prices for other homes is the area could also encourage a price reduction. Offering a “Good Faith Deposit” can also offer less risk to the seller because most contain provisions that give this initial deposit to the seller if the buyer backs out of the deal without cause. The money is usually held in a trust until of the necessary negotiations have been made and contracts have been signed.
Finding real estate to invest in can be easier said than done. Don’t wait for these homes to show up in traditional real estate listing services. Look for information on bank websites and county loan offices that know of foreclosures. You can also ask local real estate agents that are familiar with the area. Realtors can also offer insight on overpriced homes.