It’s a tragedy that many people are forfeiting their homes during this sub-prime real estate crisis. It was recently reported that foreclosures account for 50% of the homes currently being sold in the US. Even though many people are losing their homes, there are many others who can finally afford a home or are now investing into real estate and taking advantage of these discounted prices.
Most real estate investors see this current crisis as an opportunity as it’s the perfect time to buy cheap and hold until the market returns to normal. “There are always opportunities”, explains Donald Trump. “When I first started out in Manhattan, everyone was saying what a terrible market it was”. It’s a good thing he didn’t listen to anyone else’s advice or he won’t be where he is today.
Many of the top real estate investors, including Mr. Trump, now feel that this is currently a good time to invest in real estate by purchasing pre-foreclosed or foreclosed properties.
The main reason is unlike foreclosures, a pre-foreclosure is made privately between the owner and buyer and therefore avoids the bank auction foreclosure process. This provides many advantages to the buyer including more time to inspect the inside of the house and a better chance to establish a mortgage with a bank.
When looking to purchase a pre-foreclosure you also need to pay closer attention to the macro aspects (I’ll cover micro aspects in a later article) of the property in order to limit your risk as much as possible. Some of these property macro aspects are:
- Try to find out how many other homes in the neighborhood are in pre-foreclosure or foreclosure. It’s best if the home you’re interested in is one of the only houses under financial strain. In order for properties to appreciate the number of foreclosures has to be minimal.
- Check with the local tenants to see what the rent levels are and whether they have been increasing or decreasing over the last little while.
- What is the local economy like at the town, local city and/or county level? Is the unemployment rate increasing or decreasing?
- Check with local authorities to become informed about any infrastructure projects that may be planned within the next two or three years. Things such as new buildings and highways being built or corporations moving into town can be a positive indication of future growth.
- Consider the age of the majority of the population within the community. If the majority of the local population is seniors that own homes, that could translate into an excess of future housing as they move into elderly care facilities.
If you do your homework and find the majority of these answers to portray a positive community, then you should consider buying in that area. Buying pre-foreclosed homes at the right time in the right place can prove to be a very profitable venture.
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