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Surfs up! Here comes another foreclosure wave!

Winston Westbrook
3 min read

real-estate-opportunityWe’ve all heard the saying that opportunity only knocks once.

Do you feel like you missed the boat?

Many investors that were not prepared for this current historic market of record low prices and interest rates feel that their boat has set sail and they did not get a chance to participate.

American author Louis L’Amour said it best. He said, “Some say opportunity knocks only once. That is not true. Opportunity knocks all the time, but you have to be ready for it. If the chance comes, you must have the equipment to take advantage of it.”

Well, I have good news for you my friends. Another wave of foreclosures is coming and you have some time to prepare for it. The historic market you think you missed is coming back and better than ever.

So Winston, where is this second wave of foreclosures coming from?

The 2nd wave of foreclosures is coming due to the following 4 reasons:

  1. The US unemployment rate is currently at 9.7% according to the U.S. Bureau of Labor Statistics for June 2009. That’s over a 1 percent increase since February and it’s only climbing. In my state of California the unemployment rate is at a whopping 11.6%. The state with the highest unemployment rate is Michigan at 15.2%. My friends, with those high percentages it doesn’t matter how low of an interest rate a homeowner received when modifying his or her loan this past year. If you don’t have a job and can’t get one, you are going to lose your home, plain and simple. Unemployment rates are only expected to rise towards the end of 2009.
  2. Homeowners that were denied a loan modification and are currently behind in their payments are creeping into foreclosure.
  3. Homeowners in the process of a short sale that did not get approved by the lender are getting foreclosed upon.
  4. Sub Prime, Alt A, Prime and ARMS that are coming closer to their resets (please see graph below). 2007 was the last year a majority of these loans were funded. These loans are beginning to reset and with a continued down economy and low property values it will be very difficult for these homeowners to refinance. As you can see in the graph from Credit Suisse it shows that towards the end of 2009 all the way into 2011 a huge wave of mortgage resets will cause a major portion of the 2nd wave or shadow inventory as some are calling it.

So what should one do?

Here are the top 5 things you need to do to prepare yourself for the 2nd wave of foreclosures that are about to hit the market:

1. Get your finances in order. Check your credit and make sure you can obtain financing by speaking to a conventional or hard money lender. Get yourself a good picture of your financial capability.

2. Gather as much available cash as possible. Look in your couch (rescue that remote control in the process, lol). Return those x-mas gifts your aunt Sally got ya you didn’t care for. eBay all that junk in your garage. You get the drift.

3. Assemble a dream team of people to help you because we can’t do it all by ourselves. An Attorney to advise you on legal matters and to review contracts. An Accountant to guide you through the tax maze of real estate investing. A Lender to get financing for your deals. A Contractor to advise you on the costs of bringing a property up to par. A Realtor to help you with making offers and marketing your property once you decide to sell. All these people will be your trusted advisors for your success in real estate investing.

4. Learn everything you can about real estate investing. Whether you’re a newbie or a seasoned investor you can always learn something new. Take an appraisal class at your local college or pick up a book on investing at your local library (don’t forget the library is free). The more you know the less competition you will have because you will recognize a deal where the other guy will pass it on by.

5. Last but not least become a member of BiggerPockets.com if you have not done so already. BiggerPockets is the number one spot on the web where real estate investors connect with like minded individuals to help each other reach their goals.

I think I hear opportunity knocking hard, don’t you!?

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.