The buying of foreclosures is a profitable method of real estate investment. Using real estate comps to decide which properties you want to invest in is always a smart move.  The pros of buying foreclosures in many cases outweigh the cons.

A foreclosure is the term that is used when a homeowner falls behind on his mortgage loan payments and the lender who holds the mortgage takes legal action to recover the property. Although there are other circumstances that might lead to a foreclosure, falling behind at least two full monthly payments is the most common reason. There are several laws that have been enacted in various states that protect the rights of the homeowner in the case of foreclosures.

However, if the homeowner is not able to make up the amount owed and foreclosure is initiated, he stands to lose any equity he might have in the home. The lender will eventually sell the property to another buyer in a public auction and the homeowner will be evicted. This is, perhaps, the biggest advantage of buying a foreclosure property. The home owner is facing a serious loss if he has any equity in the home at all. He is going to be very open to any type of deal that allows him to cut his losses as much as possible.

It stands to reason that the home owner is not going to be in a very sound financial position. If he were, he would not have fallen behind in his payments in the first place. This means that he is quite willing to negotiate some kind of deal that allows him to come out of the situation without losing everything. The potential buyer will most likely be getting the property at considerably under the market value. This creates an ideal situation for flipping the property.

It is usually better to deal with the homeowner directly whenever possible, but foreclosures can also be bid on at the public auction. The bids are usually sealed bids and the winning bidder will be expected to come up with the bid price quickly. The homeowner might have to be actually evicted, but despite this, it is often worth making bids with the possibility of getting the property at a price way below market value is good.

The pros of buying foreclosures can be summed up by the fact that the properties can be purchased by an investor at a price below market value. This is the perfect situation for a buy low-sell high transaction!

Do you work with foreclosures daily?  How’s the market working for you?  I would love to hear about it, use the comment link above and share with us!  OR if you prefer to talk one on one,  join me on my FREE call, Monday, July 4th at 1pm EST.  Just dial 712-432-3100 x345146,  I’d love to have you on the call!!!!

The income and growth approaches for valuing real estate investment are good choices for long term success. It goes without saying that using real estate comps to value a property is one of your first goals.  But first what exactly are the income and growth strategies and how can they help the real estate investor?  Also,  which strategy is better for your investment business?

Income Strategy

Put simply this approach aims to make a regular, steady income for the investor that returns a profit each and every month. This is achieved by financing the purchases in such a way that the monthly income received is greater than the mortgage repayments each month.

Growth Strategy

This strategy is more leveraged and as a result is a lot riskier. If pursuing such a strategy the real estate investor will aim to refinance all of their properties for as much as possible so that they can buy the most properties possible. They base their investment on the fact that property prices over the long term have always risen meaning that the values of the homes they buy will rise in the long run.

Because they refinance each property to the max, their mortgage repayment are very high, often more than the rental income they receive. As a result they only make a profit from the capital value of the property increasing over time.     

Why choose the income approach for real estate investing?

Both approaches work well when property prices are rising. However as in the current credit crunch related climate when house prices are falling only the income approach will turn a profit. When house prices fall, growth investor may find their properties are mortgaged with loans that are now greater than the value of the properties meaning it is impossible to refinance them.  That, is something that you definitely want to avoid!

We’d love to hear from you!  Which strategy are you currently using and why?  Please click on the comment link above and share your successful strategy story!

Currently, there has been what seems to be a downside to  real estate comps and the real estate market due to bad economic times. While this is tragic for many people, it has also allowed others to purchase property at a low price. This is because short sales and foreclosures are available.

Short sales are something that has come about because of the real estate problem. It allows people who can no longer make large payments on homes they purchased to get out from under this burden. With this concept, banks or lenders agree to sell the house for less than is owed rather than go through the costs of foreclosure.

Previous to the current housing crisis the difference between the amount owed and a short sale was considered taxable income for the seller. The tax code has been changed, through 2012, in that this difference is not taxable and does not need to be reported. After that date, it will go back to being taxable unless the code is renewed.  

A number of investors are purchasing foreclosed and short sale properties, banking for a future gain when property values rise. In the meantime, they are renting out many of these properties for more than the monthly payment, which allows them to make the mortgage payment and put something aside for possible maintenance. This is a wise decision for those who can afford to do so, as property has typically showed a good return over time.

Anyone purchasing these properties needs to be careful to make sure there are no problems.  Properties sold ‘as is’ are especially suspect. No matter how good a person is at home repairs, things such as electrical, water or sewer problems can be very expensive and require building permits. Having an independent building inspection report will guard against this problem.

Also anyone currently buying and taking out financing should be sure that the contract has a ‘fixed-rate’ interest. A number of previous home owners, who had variable interest rate found out, to their dismay, that the interest changed almost every month, always going up. A fixed-rate will stay in place regardless of the length of the mortgage.

Many purchased highly priced housing with high interest payments and, with the current economy, could no longer afford to make the payments. The result is apparent in the number of ‘for sale’ signs that are on almost every city street. The current real estate market, however, offers a rare yet dynamic opportunity to invest in property(ies) at a price that is affordable and will build your portfolio.

I would love to hear from you!  Click on the comment link above and tell me how are you taking advantage of the current market and what it has to offer!

An appraiser is a person whose profession is to tell you what your property is worth. He is licensed by the state, so what he does is definitely legal. If you have a house for sale, for example, he would come to your house and record the number and size of the rooms and see if there is any porch, pool or garage or any other extras. Later on, he would compare your property to other homes,  or also termed real estate comps, that were sold around that time with similar features. He would determine how much, approximately, your house is worth.

Basically, what he does is analyzing the status of the local market conditions and giving you more concrete expectations for your house or any other property sell.

In most cases, he uses what they call cost approach. This will determine a price tag on a brand new house built with the same features of your house. This comparison is useful for newer houses that are new to the market. It lets sellers know how their properties are competing in the market.

Despite the importance of the property valuation, there is a more important factor that can determine the price; it is what the customer is willing to pay. Today, sellers are in the markets of buyers, and the supply has outweighed the demand. This means that the market is currently over flown with property choices. If this saturation is too high that it can damage the selling potential. Nowadays, it takes longer to sell a house compared to previous years. This indicates how much the buyers’ decisions are powerful in the market.

Obviously, property appraisal is very important before the sale, it will guarantee you a fair deal, in most cases to say the least.  This is why choosing competent, experienced and trusted appraisers is crucial before trying to sell any property, to avoid a lot of headache and to land a smooth deal.

Making appraisals work for you is a great way to ensure a good profit in the end.  Do you have deals that you are currently working on?  How did solid real estate comps help your deal?  Please click on the comment link above and leave your story!