Why the Rates of Foreclosures is on the Rise: An Ideal Opportunity to Start Real Estate Investing.

The rate of foreclosures has risen to historic levels.  It was projected that 2 million homeowners will lose their homes to foreclosure by the end of this year, according to the Center for Responsible Lending.  The two questions to ask about this financial phenomena are (1) why are foreclosure rates rising and (2) how is this an opportunity to start real estate investing?   Here are just some of the answers.

1.   Job losses.  This is THE number one reason that people lose their homes.  This is particularly true in the Rust Belt (Ohio, Indiana, Michigan) suburbs and cities.

2.   ARM’s.  An adjustable rate mortgage (ARM) fluctuates with the lending rate.  What was at first a very modest home loan made it very easy for someone to buy a home at a rate that was reflected  by the then low prime lending rate.  However, as the prime lending rate goes up or down with the economy, so does the house payment.  A homeowner with an ARM can easily see their payment go from $300 to $400 and upwards within a very short time.  Then they can’t make their payments. 

3.  Interest-only mortgages. This is a way the mortgage brokers and bankers have lured people with good credit to take a loan that they eventually can’t afford.  The lender makes the loan with the home buyer paying only the interest, or even less than interest, then resetting the loan at a higher interest rate and making full payments.  Interest-only and adjustable-rate mortgages share a 63% cut of all new mortgages.

4.   Lending to poor credit risk individuals.  Banks and mortgage brokers have been using the methods mentioned above to lend to people with a poor credit history.  These loans are, at best, risky in nature.  These home owners have low incomes and little or no health insurance.  Of those who required emergency foreclosure help, 40% stated that medical costs were the cause of their problem with being able to keep up with their house payments.   So, instead of creating wealth for these people through building up equity and stabilizing their lives, it destroys their wealth building capacity and destabilizes not only them, but the community around them.

Now how is this situation an opportunity?   Firstly, an investment in foreclosed property can be rented if you don’t sell it.  You will be doing the community a service by making sure that the house doesn’t set empty, you can make money from the rental, and when the market swings back to a more favorable position, you can sell the property for a higher value.  Secondly, you can amass property.  This might sound difficult and risky if you have the resources to buy and hold onto foreclosed property.  You can then develop it yourself, use it as a tax shelter, or live in it yourself. 

Five ways to find properties in foreclosure

Finding foreclosure properties to begin real estate investment is relatively simple.  There are several methods of find property that is has been foreclosed or is in the process of being foreclosed.  Here are a few of them.

1.  Records at the local county courthouse.   In this method you can find the houses that are being foreclosed either by lending institutions or for non-payment of taxes.  This method is time consuming, but you have complete control over your search.  The thoroughness of the information you collect is totally dependent upon the work you put into it.

2.  Newspapers.  In every newspaper in the country there is a section for legal notices.  These notices hold the legal information for properties in foreclosure.  These notices will name the person(s) who has the legal proceeding against him/her, the name of the lender(s), the name of the county sheriff, if this is a tax foreclosure, or any other pertinent information.  It will give the date of the proceedings and ask for further information from anyone who wishes to put a lien against the property.

3.  The internet.   Online foreclosure listing companies will search for notifications of default.  Then they sell a subscription for this information.  Although this is a very easy way to get the information about foreclosures, this is a ‘buyer beware’ situation.  There will be others using this service that are looking for the same information that you’re looking for.  Along with that, you need to be sure that the information you get is current and not outdated.  See if they’ll give you a free trial period before purchasing. 

4.  Direct Mail.   Consider a mass mailing through the postal service for home owners going through a foreclosure.  As you receive information back from this mailing you can be assured that these are good leads.  Another advantage is that you may be able talk with to someone that is still in the pre-foreclosure period.  They are motivated to sell, or they wouldn’t have made contact with you about their property.

5.  Real estate companies.  A bank that ends up with properties that are being foreclosed will hire a real estate agent to represent them  The bank doesn’t want the property; it wants it sold.  A good real estate agent can get a list of properties that the bank has possession of.

As you can see, there are numerous ways to find information on foreclosures.  Don’t forget, one of the best ways to get information of any kind is by word-of-mouth.  You might hear that  the brother-in-law of the your sisters best friend is preparing to go through foreclosure proceedings.  Be ready with a business card, flyer or brochure to give them.