Benefiting from Foreclosures
Foreclosures are an ugly truth in today’s economy. Even when the economy is on an upswing, people still hit hard times for a variety of reasons and sometimes a foreclosure just cannot be avoided. While these often mean dire circumstanced for the homeowner, the dark clouds have a silver lining for real estate investors. The fact that there are so many foreclosures is a clear indicator that the market is going to stabilize itself in the long-term. It’s the bounce effect, and the market is bottom out. You can expect it to rebound. If you want to gain from this drop and bounce, it pays to understand the process.
If the market is left unchecked, then property values begin to steadily rise. This growing value allows homeowners to sell their property and take the large profit to expand their standard of living to accommodate a much more expensive home. Those who currently dwell in expensive housing end up taking out multiple mortgages, turning over equity in their real estate investment so they can enjoy a few pleasures here and there. This is where trouble can arise.
If the market continues to grow unchecked, the rising prices forces a lock down and those who are trying to get their foot in the door on even a start home are unable to do so because of the rising property values. When the bottom of the market begins to teeter, and no new buyers enter the market then the lock down continues. Those on the middle ground, with moderately expensive houses, want to move up but there are no buyers for their own property. Buyers become sparse because the entire property market has suddenly gotten too expensive to facilitate a good deal – real estate investors go into hiding.
This has a profound effect on the bulk of the real estate investment economy because it relies specifically on new home buyers to maintain its buoyancy. New home buyers are the fat in the whale. Whales cannot survive if they are skinny. If you consider all this as one large picture, you begin to see where foreclosures can play a large role in stabilizing an economy that has gotten out of hand. It allows prepared real estate investors to once again enter the market and begin pouring money into the economy.
Because a home acquisition often means some measure of improvement and renovation before a sale, the foreclosure generates income that spreads into the local economy as well – piping money into contractors, local vendors, appraisers, inspectors, etc. Real estate investing can do its fair share for the economy through foreclosures and bank owned real estate. When credit improved and people begin to finance, the process begins again and can expected to repeat in the end. It is scary, but when managed properly it can be wrangled and mastered to produce excellent returns on real estate investment.
This may be oversimplifying the concept a little, but it puts the entire market into perspective. Real estate investors should not fear a market in foreclosure. It is the perfect time to begin anew, like a phoenix rising from the ashes.