All we need is more soundbites like this, and we’ll be off to the races. Potential buyers who are gainfully employed and have ample resources will gravitate to these articles, especially when they’re quoting the guy with the most negative foreclosure stats.
Foreclosures have long appealed to investors who are looking for instant equity—and willing to roll up their sleeves. Often, buyers can purchase such homes for 20 percent to 60 percent off their potential market value.
“There is probably three more years of extraordinarily high levels of distressed inventory before we burn through this supply,” said Rick Sharga, senior vice president of RealtyTrac.com. “This is a market where somebody who does their homework can save significant money on a home purchase and create a nice investment opportunity on a longer-term basis.”
Investors entering the market today, however, will have to employ a different strategy than those who came before. If you’re looking to renovate and flip, forget it. But if you’re in a position to buy and hold, with the intent of either renting your property or sitting on it until the real estate recession subsides, the market is ripe for the picking.
According to RealtyTrac.com, Nevada, Florida and Arizona lead the nation in foreclosure rates, while Sunbelt cities and states, including Las Vegas, Nevada, Modesto, California, and Cape Coral-Ft. Myers, Florida are posting the largest number of foreclosures.
For investors, notes Sharga, a rocky residential market and a growing inventory of foreclosed homes could mean a bigger potential payoff down the road.
“If you combine a down market with the kind of discount you’d be looking at with the typical foreclosure, that doubles your opportunity for success when the market comes back,” he said.
“Many foreclosure investors won’t purchase a property unless it is at least a 30 percent discount,” said Sharga. “That’s because you’ll typically need to do a rehabilitation to bring the property back up to the neighborhood standard, you’ll probably have to finance it for a short period of time and it’ll cost you some money to market the property.”
It may be not sit well to profit from someone else’s misfortune, but keep in mind that when you purchase a distressed property you’re not just doing your investment portfolio a favor.
By reducing the inventory of available homes, you’re also helping to stabilize the residential real estate market, which, in turn, will buoy the troubled U.S. economy.