Surfs up! Here comes another foreclosure wave!

14

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!?

About Author

Winston Westbrook is broker & owner of Westbrook National Real Estate Company servicing the cities of Victorville, Spring Valley Lake, Adelanto, Hesperia, Apple Valley & the surrounding Victor Valley High Desert communities of So. California. Specializing in short sale and distressed properties.

14 Comments

  1. I agree with your conclusion of a new wave of foreclosures are coming; however there have been fewer trades in the distressed real estate market due to buyers and sellers (Banks, etc.) being in different pages with regard to price. I would have like to see more specific examples where you have seen this demonstrated in the marketplace. Please see my blog at http://benstonegroup.com/?p=412 . This blog covered the same subject, arrived at a similar conclusion and included examples where this misalignment in trade prices are shown in the marketplace.
    .-= Tony Bennett´s last blog ..Small Cap Performing Commercial Loan Pool =-.

  2. Ruth Ahlbrand on

    We agree with you there is probably a second “wave” of foreclosures that will hit the proverbial “beach” here in the US. But, here in Las Vegas, this is not all bad, other than for the unfortunate homeowners, which we care for; but, right now we have 20-30 offers in some cases on existing foreclosures and we don’t have enough inventory to satisfy the demand in some price ranges. The market may be able to absorb more foreclosures than many of us realize.

  3. Don’t forget to factor in the rental market into this picture on a national basis, which helps to support investors who are buying foreclosures around the US. Many homeowners who have been foreclosed are turning into renters and in some cases already planning on buying again with 18-24 months, depending on the type of loan they can qualify for.

  4. @ Tony Bennet, Thanks for your comment. I went and read your article and left you a comment there. I do agree with you that the public and the banks are on two different pages. The public is usually 6 months behind of what is really going on in real estate due to the medias slow response to changes. The general public believes the banks are giving away the properties when in reality, in California at least, they’re not. Bidding wars and bids $15,000 to $30,000 above asking price are the average in the first time homebuyer segment. I believe once this influx of additional foreclosure properties come into the market it will lessen the competition thus allowing someone that feels like they missed this historic market another chance at participating. Also as an investor the key is to get involved with these properties before they reach the foreclosure stage. Competition is ZERO!

  5. @Ruth Ahlbrand, Thank you for your comments. Ruth I hope the market balances out to where we do not have to have these bidding wars of 20 to 30 offers on a property. It’s historic to say the least. I do hope that more properties come on the market and quickly. I have a colleague that works for J.P. Morgan Chase and states that the banks are holding inventory back on purpose to bring the prices up some. And yes we do need those renters to fill up those investment properties. Hopefully as investors we are all getting them locked into a lease option and 2 years down the road when they have restored their credit they can purchase that home or call me to sell them one, lol.

  6. Winston, I deal in California as well. Down the hill from you.

    We see properties go for $15,000 – $30,000 over list all the time. Some of the properties we sell are doing this right now. The lack of competition is why, but I still think the buyers are getting great deals on the affordable housing. Not necessarily because of pricing, but the price combined with the interest rate makes for low payments.

    All of the deals we sell at full retail are still much cheaper for an end user to own then rent the same house. Usually by 30%.

    Will prices go down, I think so. Will the owner occupants who buy now get hurt badly, as long as they have stable employment they should be fine. Some of this stupid investor money, coming from people who have no business flipping or owning rentals, will disappear this winter.

    That’s my theory at least.
    .-= Steve´s last blog ..California Real Estate Auctions – Sell Properties at a Premium? =-.

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  9. Your logic makes a great deal of sense, however I would hope that most interested in real estate speculation would have assembled their team a long time ago.

    I for one, began working with a small group of different professionals to bring our individual talents together to assist each other in taking advantages of opportunities that present themselves.

    Here on the East Coast, we are seeing properties at or below asking prices, which have fallen substantially. We feel that deals are starting to emerge more frequently and we will be ready for them.

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