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How to Buy Real Estate For 31-cents on the Dollar

Aug 26, 2008
Would you buy homes if you could get them for 31-cents on the dollar? I mean, would you pay $62,000 for a home worth $200,000?

I know that sounds crazy, but I also know it's happening right now, today!

"Fortunes are made when blood is in the streets." You've heard that one, right. Well, when it comes to the housing crisis in the U.S., blood is in the streets and fortunes are not being made, but augmented.

It's the folks who already have fortunes that are buying American real estate at "dollar store" prices. I'm talking about sovereign wealth funds. Let me remind you of exactly what a sovereign wealth fund (SWF) is. A SWF is a state-owned investment fund composed of financial assets and pools of money derived from a country's reserves, which are set aside for investment purposes that will benefit the country's economy and citizens.

We Buy, But Don't Sell

The funding for a SWF comes from central bank reserves that accumulate as a result of budget and trade surpluses, and even from revenue generated from the exports of natural resources.

It boils down to this: The U.S. has been buying way more from other countries then they have been buying from us. We have all that stuff that we purchased through Wal-Mart... and they have all our money. In our modern world all that wealth is really just a few digital computer blips. If it were actual thousand dollar bills they would have enough to fill China's Bird Nest Stadium to overflowing.

We are experiencing the greatest transfer of wealth the world has ever seen. For those of us in the U.S. the wealth is traveling in the wrong direction.

Billions and Billions and Billions...

The amount of money in these funds is mind boggling. As of May 2007, the UAE's (an oil producer) fund alone was worth more than $875 billion. The estimated value of all SWF cash is estimated to be $2.5 trillion and growing.

Due to those Washington politician's self-serving fiscal policies the value of the dollar has been dropping faster then a speeding bullet. No one with the slightest understanding of economics wants to own something that continues to drop in value, and that includes managers of the sovereign wealth funds.

The SWFs are using our dollars to buy up assets with appreciating value around the world. In the U.S. that includes valuable real estate like the Chrysler Building purchased by an Abu Dhabi fund.

The Big News

But here's the big news. The funds are now ready to grab tens of thousands of foreclosed homes in the U.S.

When a bank takes back a home it goes into their REO account. REO stand for real estate owned and banks have thousands and thousands of owned homes sitting vacant. They have far more homes available then interested buyers... until now. The SWFs are to turning those depreciating Wal-Mart dollars into solid real estate assets.

When you have the cash you can make killer deals. In previous articles I have suggested that investors band together and buy bank owned homes by the dozen. That's how you sift fortunes from the blood flowing in the streets. Do you suppose someone in Saudi Arabia read that?

The sovereign wealth funds are operated by smart guys and they can recognize opportunity when they see it. American bankers are desperate and the SWFs have big money. Do you think some sweet deals are going down? You bet your FICO score they are. These are cash deals that may save some banks from going under.

One buyer representing a SWF is now willing to pay 50 cents to 60 cents on the dollar for a collection of California REOs worth, at a minimum, $500 million.

It is reported that this same buyer negotiated a $2 billion package mixed with homes across the country for 31 cents on the dollar.

Here's where you should ask, "So what? Why should I care?" Well, those funds must profit from their investment by offering those homes for sale.

Since they purchased them at deep discounts they can sell them at discount prices. When you under cut market prices you bring down the value of all homes in the market. That means even more people will find they owe more on their mortgage then their home is worth.

Does that mean more foreclosures, more homes offered at discount prices and a further drop in value for all homes? Darned if I know, but I am sure glad that I sold my investment property two years ago.
About the Author
Mark Walters is a third generation real estate investor and founder of CreatingWealthClub.com. For a limited time Mark is offering his big guide to finding hard money loans for real estate investing free. Free guide to private money loans. http://www.FindPrivateMoney.info
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