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Good News In The Housing Crash

Dec 7, 2007
It is hard to find anything good to talk about in a housing crash, but when banks start to repossess homes, the auctions offer ample opportunities for investors. The banks lost control in 2002. They became greedy and started lending without checking references, income, or credit rating.

Last year the US sub-prime market crashed taking 70 of the largest mortgage lenders with it. The credit crunch hit the UK in September 2007. Both of these markets are experiencing record numbers of repossessions. Property investors are watching the markets closely, waiting until the number of repossessions outstrips the number of buyers.

Most repossession do not go to real estate agents. They go to auction. At the beginning of a housing crash the real estate agents buy up the prime properties, but after a while they are tapped out. The increased interest rates that fuel the housing crash, and the consumer's loss of confidence in the banks, result in a backlog. Real estate agents end up with more properties than they can sell. That is the time for the property investor to step in.

Most investors are not interested in flipping the property. Instead, they sit on their properties for several months, or years. They rent the property to cover costs and wait for the markets to improve, which could be soon.

The Canadian market did not lend so recklessly. Their dollar is strong, and their interest rates low. This will create a 'safe' market for banks to invest in. The banks will tighten their lending criteria, all of this is 'balancing' the economy. This rebalancing is expected to hit the UK before the end of 2008, and the US in 2009.

The rebalancing is important to a property investor's strategy. A predicted rebalance indicates that the market does not expect a recession, but a quick return to profit and wealth generating. Only the consumers who overstretched themselves, borrowing too much, or spending to freely, or those who lied on their mortgage application will be hit hard. The rest of the population will ride out the 2007/2008 year.

The property investor can purchase properties at auction, sit on them for a few months, and then flip them at a profit.

Depending on the time line, an investor can purchase homes for as much as 50% off the current market value - if they are ready to act.

Foreclosure investing has long been a mainstay of the property investment world. Risk is lower, but only if the investor has an opportunity to look at the property. Many investors jump too fast and purchase properties that are seriously damaged. There are unlimited horror stories of investors who purchased a foreclosure at 20 - 30 and even 50% lower than market value, only to lose their shirts because the house required extensive repairs.

There is no limit of foreclosure properties. Investors may not need a bank loan. They just need to identify an interested buyer. It is anticipated that the foreclosure properties market is will grow at an accelerated rate over the next few years. The foreclosure market offers value on the money invested and re-evaluation of the property.

There are two places to look for properties in the US. The County Tax Sales handle the sale of properties which are behind on their property taxes. The US Marshals Service (USMS) offers properties which were forfeited or ordered sold by a court order. They also seize properties for back taxes and resells them. The federal government can legally seize a property and resell it to cover their costs - regardless of the property's true value.

A third way to buy property is to hunt for people who are in trouble. Many people will try to sell their property privately to avoid seizure and bankruptcy. They will often sell it for little more than they owe, as a last ditch effort to keep from losing everything they own.

A property investor needs to create a solid strategy for success. There will always be another 'great deal.' There is no reason for a property investor to risk their strategy and plan for success because someone alerts them to a hot tip.
About the Author
Mark Walters is a third generation entrepreneur and author. He offers free training and investing videos designed to speed you towards financial independence at http://www.CashFlowInstitute.com
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