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If you believe in the investment philosophy “buy low and sell high,” then you’re probably already starting to wonder if now is the right time to begin buying real estate. The market is flush with foreclosures (homes that have already “gone back” to the bank/lender) and short sales (those ripe for negotiation with lenders that have yet to “take back” the homes through the foreclosure process), both of which present good opportunities for investors looking for a beneficial place to put their money.
A record 12% of all U.S. mortgages were at least one payment behind — or already in the foreclosure process — during the first quarter of 2009, according to the Federal Housing Finance Agency. During the same period, property values declined to their lowest point in years, with the average price of a U.S. home falling 7.1%. Add in mortgage interest rates that are hovering around a low 5% and the fact that many investors have become disenchanted with the stock market, and it’s clear to see that now could be a good time to get into real estate.
“Because so few homes are selling right now, in some cases property can be picked up for less than 30 cents on the dollar (compared to the previous sales price),” says Michelle Francis, a Realtor with Tim Francis Realty in Atlanta. Compelling as they may sound, such deals can present unique challenges for the investor.
Francis recommends steering clear of geographic areas fraught with foreclosures. “If you look down the street and half of the homes are in foreclosure, it’s probably not a good place to buy,” she cautions. In Atlanta, for example, Francis says investors should stay away from the condo and townhome market, both of which were overbuilt during the housing boom.
“It will be a long time before those markets recover,” she says, noting that a “buy and rent” strategy (for someone looking to purchase a second home, for example) may not always work out in such cases. “Many times in these developments, rentals are only allowed for 25% of the total units. You could end up on a multiple-year waiting list before you can rent out your property.”
Certified Distressed Property Expert George Durkin, broker-manager with Realty Executives of Nevada in Las Vegas, says real estate investors who do their homework — and who don’t try to calculate the market by looking for the “perfect” time to buy — will have the best chance at success in today’s market.
Because you can’t be sure of the circumstances behind the former resident’s exodus, and because foreclosures and short sales are typically purchased “as is” and without warranties, Durkin says the best defense is to ask for a due diligence period of at least seven days after you make an offer.