Wednesday, March 26, 2008

As Foreclosures Accumulate, Where Are The Opportunities For Investors?

The wave of foreclosures sweeping the nation has probably piqued the interest of most real estate investors. As more and more foreclosed homes flood the market, prices are plummeting, and there are seemingly more deals than one could ever hope to count. Should investors really be excited about these foreclosure opportunities? The answer to that question lies in one’s estimation of the real estate market.

Investors who believe that the market has hit bottom should seriously be looking at some of these foreclosure investment opportunities. Banks are becoming overloaded with REOs, and they are increasingly willing to deal with investors. This is not the case with all banks, but persistent investors are getting properties at 70 to 80 cents on the dollar, or even better in some instances. In Michigan and Ohio particularly, banks have more foreclosures than they can manage, and investors are getting especially attractive deals.

Investors should still use caution when looking at foreclosure investments. Areas that have a lot of foreclosures tend to be on the down trend. Neighborhoods that have a plethora of foreclosed homes are often faced with higher crime levels, lack of property upkeep and other negative features. This can lead to severe price drops in the neighborhood as it becomes less attractive to potential homebuyers. Unless investors are specifically looking for a neighborhood renewal project, they would do well to locate properties in neighborhoods which have not been as negatively affected by the downturn.

Investors must also consider that real estate prices could continue to slide. Even if one is able to buy a property for 70 cents on the dollar, if its value decreases another 20 or 30 percent, it no longer looks like such a good deal. In order to protect themselves, investors can look for properties which can be easily rented out to cover property expenses, including the mortgage. Cash flow property typically retains its value because it is not speculative like other investments, and investors can see the returns when they buy it.

If investors have the required funds, another foreclosure investment opportunity is to buy properties in bulk from lenders. Some lenders are more willing to offer discounts on their foreclosed properties if they can unload them in large quantities. Investors could then turn around and sell them off individually to other investors at a profit, or they could simply keep them for their own portfolio.

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