Investing in Foreclosures – Why Do Investors even Bother?
There is a lot of talk in the real estate world about foreclosures. Everyone wants to find one but no one really seems to know how. And then if one is found, how to fund it. Sure, you are told to go get the list and then buy one but no one really ever explains the hows and whys. What would make a perfectly sane person buy a house that was in bad shape? They have the money to buy almost any house within a range of prices yet they choose to buy the ones that need the most work. Is there a reason why investors bother with foreclosures?
The people with money seem to always know how to make more and those with no money seem to always be broke. This isn’t really a cycle, it is just a matter of knowledge of investing and lack of knowledge. When you know how to invest, you are more likely to take the time to learn how to correctly invest. The theory that your money does you no good sitting in the bank is a valid one and one that many investors live by. The bank cannot make your money grow except for a small percentage and what good is that for your future? There are many options out there for investing but they may seem wishy-washy or downright risky. One investment that when done correctly, will yield a profit is the real estate market.
Yes, the real estate market did take a tumble in the past couple years but people still need homes and right now everything is on sale. More than ever, homeowners now need a rental home. Maybe they lost a job and their home went into foreclosure or they had to sell it in order to move for a new job. Whatever the reason, these homeowners who previously were not on the market for a rental or a different house, are now looking high and low for something into which they can move into. They may not be looking for a luxury home as they had hoped but rather a more modest home where they can settle in order to rebuild their lives. Too many people in this country lost jobs and lost their stability, which left them in a financial mess. This can be attributed to many economic factors but it doesn’t change the fact that people need a place to live and these homeowners are not eager to move into apartments.
Investors can see the future. They are visionaries and usually surround themselves with information so they know a trend before it is a trend. In this way, they can jump ahead of others and get in on the idea, product, or service that will be profitable. They have seen this slow moving trend of homeowners moving out of their expensive houses and downsizing in order to stay afloat in a bad job market. They have seen some families moving into larger homes so their extended family can move in with them to avoid getting into a financial mess. These are all results of a bad economy and poor job prospects for many people.
When a person loses their primary source of income, three things can happen:
1. They will find another job and avoid financial ruin, minimal loss and avoidance of disaster.
2. They will be forced to downsize everything while taking a lower paying job, this includes lifestyle changes, housing changes, and everything possible to stay afloat and avoid financial ruin.
3. They will lose everything because they can’t find a job and couldn’t sell their house, experiencing financial ruin.
While #3 seems like the worst out of the three, none of them are an easy situation through which anyone wants to navigate. If you avoid a financial disaster, that is great but it makes you realize how close you were and how maybe you should reevaluate your expenses to avoid it coming that close again.
Investors are the people who are not affected by the economy as much as the average person. They have a money supply that can be used in order to make money when times are tough. Sometimes they get a bad reputation for taking advantage of people who are down on their luck but in reality, they keep the economy going enough so it can recover. They are the ones keeping the housing market from collapsing by buying up all these foreclosures. Why would they do that? Why not just let them sit vacant?
People will always need a place to live. They may not be in their huge homes with pools and media rooms as often in the future as they were in the past but they will still need a house. This is what investors know. They also know if they can buy a foreclosed house at a rock bottom price, they can put in a little bit of work and make it into a housing option for the right person. Just because someone has lost their job in the past and had to sell their house quickly, doesn’t mean they will be happy to move into an apartment or townhouse.
They will want to downsize to give their finances time to recover but will want to be comfortable. The investor can sell these foreclosed properties as move-in ready to these families and make a profit. A foreclosed house may not have major work necessary and with some cosmetic improvements, it can be sold or even leased to a viable tenant who needs some time to recover from their recent hardship. This doesn’t mean they can’t pay their bills. It just means they need time to regroup.
Investors love foreclosures because they are cheap yet many investors can turn the house around and then turn the whole area around. When a foreclosure hits the market, it takes down the values of everyone in the area. If the investor buys it and flips it, the values can go back up. In essence, they are helping to improve the value of the area and keep the housing market from completely crashing and burning. They are a philanthropist in their own way by providing quality housing to those who need it and may need to recover from some financial difficulties.
There are also those investors who don’t have the money to fund their deals. This isn’t a problem either because there are other ways to fund deals. We happen to be one of those other ways. It’s called transactional funding. We provide funds for investors so they can quickly buy and flip their deal to another investor, rehabber or landlord. It words very smooth. Now, I want to make sure everyone understands. This is not a long term loan or used for rehabbing. This is simply used for a few days at most.