The growing inventory of distressed homes on the market. is continuing to send shock waves through the economy; but it’s also providing investors with a longer and wider window of opportunity to get involved here.

Despite the efforts of the OBAMA Administrations federal initiatives to stem the rising tide of foreclosures, some 291,000 foreclosure filings were reported in February, the third highest monthly total since RealtyTrac began following the data in 2005. Such filings include NOD (Notice Of Default) default notices, auction sale notices and bank repossessions.

Over the last three years, more than 4 million U.S. homes have been sent into foreclosure.

Whether you’re an investor looking to purchase a rental property, an investor looking to purchase refurbish and the resell the property, or just a homeowner who’s ready to retire and move someplace more affordable; the price of foreclosed properties are ripe now, which means it is right for you.
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Often, buyers can purchase such homes for 20 percent to 60 percent off their potential market value.

"This is a market where somebody who does their homework can save significant money on a home purchase and create a nice investment opportunity on a longer-term basis," said Rick Sharga of RealtyTrac.com.

If you’re looking to renovate and flip, you must really do your homework on the property first. You must look at recently closed sales, probably within the past 3 months, lets say within a one-half mile radius for very similar properties. You must have a good building inspector to give you a precise cost estimate on what the repairs are going to cost you to get the property back into condition; you will not be counting on market appreciation here, only the quality of the purchase price, the cost conscientiousness of the repairs and remarketing expenses will make your profit here. Bear in mind that most properties going into foreclosure are being returned to the bank due to financial problems. Therefore the repairs and maintenance are not typically being kept up with, in addition to the rents not being paid.

But if you’re in a position to ‘buy and hold’, with the intent of either renting your property for the rental income stream, then sitting on it until the real estate recession subsides, the market is ripe for the picking in that regard. You will later receive the market rebound rewards which will surely come after this flood washes through the system. Make no mistake about it, there will always be a foreclosure market to watch and be involved with, just like there is always going to be an unemployment number to watch; both just happen to be much larger during recessions but always there.

"Investors need to be cautious and have a long-term strategy," says March. "I don’t think we’ve seen the end of this economic downturn, so you have to be in a position financially to be able to afford the new mortgage even if you lose your job." [Mrs. March was specifically referring to the Southern Florida market when making that remark. She is quite the expert in that area and knows it is like quick sand there right now with prices continuing to fall and foreclosures continuing to rise]

That means buying in a location where prices are low and demand for rental properties remains strong.

According to RealtyTrac.com, Nevada, Arizona and California lead the nation in foreclosure rates, while Sunbelt cities, including Las Vegas, Cape Coral-Ft. Myers, Fla., and Stockton Calif., are posting the largest number of foreclosures.

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For investors, notes Sharga, a rocky residential market and a growing inventory of foreclosed homes could mean a bigger potential payoff down the road.

"If you combine a down market with the kind of discount you’d be looking at with the typical foreclosure, that doubles your opportunity for success when the market comes back," he said.

Pitfalls

The process of purchasing foreclosed properties, however, is also fraught with risk.

Without preemptive research, an investor could end up buying a home with an outstanding tax or other lien, for which you become responsible.

"I’ve even heard about people going to auction and buying a second mortgage rather than the first and thinking they got a great deal on a house," said Sharga.

Before making a buy, investors need to do their homework carefully—that means hiring a contractor to complete a home inspection for big-ticket problems, like structural damage or costly mold.

Investors also need to secure as precise a figure as possible for how much renovations will likely set them back, a major drag on profit.

Finally, buyers should consult a real estate agent to learn about comparable home sales in the same neighborhood, which will help determine how much the house might eventually fetch at resale.

They should also take note of how long listed homes—both rental and resale—have been sitting on the market.

"Many foreclosure investors won’t purchase a property unless it is at least a 30 percent discount," said Sharga. "That’s because you’ll typically need to do a rehabilitation to bring the property back up to the neighborhood standard, you’ll probably have to finance it for a short period of time and it’ll cost you some money to market the property."

It may be not sit well to profit from someone else’s misfortune, but keep in mind that when you purchase a distressed property you’re not just doing your investment portfolio a favor.

By reducing the inventory of available homes, you’re also helping to stabilize the residential real estate market which, in turn, will buoy the troubled U.S. economy.

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Odd as that seems given the performance of the rest of the market, it was consistent with what we’ve seen in luxury markets throughout much of the country. Folks in that price range generally pay cash and aren’t so concerned with credit crunches. Moreover these are often second or third or whatever homes so the buyers usually don’t have worry about selling the homestead in Michigan in order to buy in Sedona. And, even though prices have been rather stable, inventories rose significantly enough to give luxury buyers many more options and, thus, bargaining power.

2007 maintained that pace – that is, until the luxury home market flew into a wall in the second half of the year. Whereas 30 of those homes sold from January through June, only 12 sold from July through December. That’s a 60% drop.

So what’s been happening this year? So far, a pronounced "thunk!" Through the first two months of 2008 we’ve seen only two luxury homes sales. Not the fast starts we saw in 2007 (7 sales), 2006 (8 sales), 2005 (6 sales). Slow sales and historically high inventory (120). Hardly an auspicious beginning of the year for would-be sellers. For buyers, however, it’s a signal to swoop in for a bargain.

What’s to say that this is not just the beginning of a long-term decline in the luxury homes market? It could be. That depends, somewhat, on how far luxury home sellers want to swim upstream in the River of Denial as their counterparts in the general market did before realizing that the market had deserted them and dropped their prices to attract buyers. If luxury sellers recognize the realities of the market and bargain accordingly, we’ll have found the bottom of the market. From there we’ll see an upswing. If they’re stubborn about keeping their heads in the sand, they’ll be sitting on those same homes this time next year and we’ll have had a prolonged Buyer’s Market in luxury homes that will continue well into 2009.

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No one likes to go through foreclosure. It destroys your credit
and can make you feel embarrassed. In many instances, you will not be eligible to purchase another home for five years, which means you will have to rent. Short sales are not the perfect solution if your mortgage is pulling you under, but it is certainly better than the alternative in many situations. Here are a few of the advantages of this option:

Benefits of Short Sales:

As mentioned before, you won’t have to face the embarrassment of being in foreclosure. You can maintain your dignity, knowing that you sold your home.

You will no longer have mortgage payments
to make, unless you choose to do so.

Under Fannie Mae guidelines, you will most likely be able to purchase another home in only two years, instead of having to wait for five. Additionally, if your credit report shows no late payments past a 60 day time period, you may be eligible to purchase another home immediately.

With foreclosure, your rights as a homeowner are literally stripped away from you. You can forget purchasing anything with credit, as you will have absolutely no credit for ten years. An experienced Phoenix real estate agent can help you by clearly explaining your options, and how they work. If you choose one who works personally with you, you can be sure that they will support you and your best interest.

Obtaining the services of a realtor is beneficial when it comes to short sales. The agent will be paid by the lender, and will make certain to find a buyer for your home. If a professional can help you find the right buyer, they make a commission. With foreclosures, the agent makes no money so of course they would rather find a buyer for your home. To sum it all up, choosing this route is best for you as a homeowner, as well as the agent.

Do you have a home in the Phoenix area that you are about to lose, due to financial difficulties? Before you decide to go the foreclosure route, speak with a highly-qualified Arizona realtor. He/She can discuss all of the aspects of a short sale, and how it may be the perfect solution for you.

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