With the stock market shaky and other returns failing to deliver on promises, more and more investors are looking towards real estate as a stable place to invest their money. And with good reason – these are the glory days of the real estate investor. Low prices, foreclosures, rock-bottom interest rates and stable rental markets have all created excellent buying opportunities. Investing in real estate is a longtime practice of the wise investor, but with this current climate in real estate, it is attracting new investors daily.
Old real estate investment strategies involved what we call flipping a home. In this practice, an investor buys a property, puts a little money into it, and sells it as quickly as possible for a profit. These investors earned the monker “vultures” for their repeated practice of swooping in and purchasing foreclures, short-sales, and other distressed properties. But with fewer overall buyers, and those buyers able to be more selective, this is becoming the less common route of the investor. Today, they are more likely to hold onto a property purchased with the intent of renting it out. While it may be hard to sell a home right now, it is comparably incredibly easy to find a renter. And this practice is substantially more stable, and oftentimes more lucrative. Take into account the relatively low monthly payment on a foreclosed home, maintenance fees, and taxes. Now consider that rent accrued will be substantially higher than the costs. While it would be hard to live off a rental property alone, an extra few hundred dollars a month is likely to be very helpful during these tough economic times.
Then there are those investors (generally investment firms) seeking to not only get a return on their purchase, but help out fellow community members in need. A recent trend among a small percentage of those purchasing distressed properties has given hope to many homeowners across the country. Some investors are choosing to purchase the loan on a home before it reaches foreclosure; this way, they are able to acquire the loan at a deep discount and renegotiate the terms with the homeowner. Typically, this means that balance, interest rates, and monthly payments will be discounted for the homeowner. The main reason this type of deal is possible is that these firms buy loans, mostly from banks, at steep discounts to the balance due. If a fund pays $50,000 for a loan with a $100,000 balance due, for example, it can make a profit even if the borrower ends up paying back only $70,000.
Cutting the loan balance is one of the most effective ways to motivate borrowers to resume payments because it gives them more hope of eventually owning the home, say nonprofit groups that work with distressed borrowers. However, banks have been reluctant to reduce principal, partly because that would require them to recognize losses they still hope to avoid. Their modifications almost always involve reducing the interest rate or giving the borrower more time to pay.
Still, every day the number of foreclosures in the College Station and Bryan markets continues to rise. In fact, in our Century 21 office, we have received five additional foreclosures in Bryan/College Station today alone. While this marks a disappointing trend for some community members, it is an excellent opportunity for those investors looking to augment their income. If you are one of these potential investors and have any questions about buying a foreclosed home, please contact me at your convenience.
Clay Lee – Realtor
Century 21 Beal, Inc.
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