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Foreclosure Home Investors Face Dilemma

By: Alexis McGee | Written: March 12, 2013

It’s hard to miss the many housing reports in the news. Available for sale inventory is down. Prices are up. Now mortgage rates are going up. Reading through all these reports I see one very consistent theme here – we are back at 1997 all over again. If you could go back to 1997 and buy every discounted foreclosure you could – would you? And now that you have a second bite of the apple – will you jump in with both feet? I hope so. (Join me this Wednesday to learn how.) If you don’t believe me, read this for yourself…

Foreclosure Home Money

Home buyers face dilemma with shortage

Bay Area home prices have bottomed – the lower price range in 2009 and the middle – and the upper price range in early 2012.  Prices are increasing because of a serious inventory shortage (down to only a 2 month supply in many areas). Many believed there would be a tide wave of new foreclosures hit the market last year. But that did not happened. Instead we’ve had five factors contribute to an inventory shortage. Currently for sale listings are increasing slightly as the busy spring buying season gets under way, but Trulia Chief Economist Jed Kolko predicts they won’t start rising on a year-over-year basis for at least 2 more years – to at least 2014 in most areas. Read more here.

Home prices finally returning to normal

After years of wild swings, the U.S. housing market is slowly returning to normal. “2012 was the first year since 1997 that the housing market has resembled something [close to] normal,” said David Stiff, chief economist. “For the past 15 years, home price changes and sales volumes have either been boosted by a bubble mentality or crushed by crash psychology.” Stiff expects home price gains will be similar to those experienced back in 1997. Prices are extremely affordable and mortgage rates are at or near historic lows. Overall, Case-Shiller expects stronger demand for housing, and the sector should, once again, have a positive impact on the economy. Read more here. 

Mortgage Rates Highest In Nearly 10 Months After Employment Data

Mortgage rates vaulted higher today at their fastest pace since late January, after the Employment Situation showed an unexpectedly high number of jobs created in February.  The Employment Situation is the most important piece of domestic economic data each month and always has the potential to greatly impact markets.  This was indeed the case today, and it brings 30yr Fixed Best-Execution up to 3.75% for the first time since May 2012. Read more here.

As positive as the news is – we do face a challenge. It is getting more and more difficult to find deals. And when we do find a deal, oftentimes it is being bid up by every Tom, Dick and Harriet, well over asking price. Most likely these buyers are either long term investors seeking positive cash flow, or home buyers who want out of the rental market. If you are a “buy, fix and sell” flip investor – you cannot compete with these buyers. There prices will bury you every time.

Foreclosure Investors, You are Faced with a Dilemma. What do you do?

  1. Compete with aggressive buyers for deals on the MLS and over pay for property (and lose money on your flip)? No, that’s crazy. Who would do that?
  2. Retreat to another market area, thinking it’s “just your area” that is this competitive? Sorry to break the news to you – but you area is not an island – I’m hearing about inventory shortages all over the US (especially in the hardest hit markets).
  3. Find motivated sellers that your competition is missing – such as homes not listed on the MLS? BINGO. Correct answer! Smart investors don’t follow the pack. They go where others are not. Smart investors put themselves in the right places to find the right deals – and pay the right prices!

You read right. Smart investors not only know where to look for the best deals, but they know how to price their deals properly – so the seller says yes AND they lock in a 15% profit for themselves at the same time. In this hot market, with prices rising rapidly, it is not easy to determine “after repaired value”  (ARV). And without the right ARV you cannot calculate your offer price. Everything rides on the determining the right ARV with the right repairs (and repair budget). You better get this skill perfected, or you will be in trouble!

Doing the math right is critical, even in a rising market. You can’t afford to pay too much – and risk not finding money partners to fund your deals. (Money people are not stupid, they won’t over pay for property. You have to show them it’s a good deal at purchase or you’ll never hear back from them again.) And if you have your own money, there is no reason you risk losing it. Nor can you risk going to low in your offer price and risk not getting the deal. You want to invest right? You’ve got to get off first base then!

Join me this Wednesday in my Live Strategy Session to learn “Get Your Wholesale Offers Accepted in a Competitive Market“.

If you are not already registered, please do so here. We are very close to a full house already. And then make sure you login early and stay until the end. I’ll be reviewing 3 real flip deals – showing you exactly how to get deals priced right. And I will be taking live questions at the end, so stay for the full class. You don’t want to miss this one. Talk to you then…

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