Make Some Money in Foreclosures, REO’s, and Short Sale Properties

I have been helping several investors acquire these types of properties in recent months and cannot believe what some of these properties are being listed and ultimately sold for. Right now, I was just looking at a property in Rancho Sahuarita — a home over 2300 square feet — listed at $195k, and it was in amazing condition. The same home 24 months ago would have easily sold fast at $250k and maybe more. This market decline has obvious causes: less availability of loans for buyers, excess inventory levels, and, in my opinion, a major psychological shift. People are running away from real estate, and the market is starting to show it. While amazing deals are still difficult to come by, they are starting to show up.

Every market, from stocks and real estate to what you pay for a paperclip, revolves around the market conditions and general psychology relative to it. In real estate, it is interest rates, local economy, inventory levels, and the general psychology of the buyers that influence price moves. In our current Tucson AZ marketplace, it seems to me that the psychology has gone beyond what’s reasonable, which happens during the course of every boom and bust. During the boom, everyone was trying to buy, and now the other side of the coin says during the bust, everyone is trying to sell or stay away from real estate. It’s the irrational thought processes that allow those who are able, determined, and strong-minded to say, “Everyone else wants out, I want in.” That allows smart investors to make big money in any market. The real estate market is about to give those ready for it, amazing bargain prices on many properties, and once this market stabilizes, tremendous profits. Everyone deep down knows this is how the game is played, but it’s a fact that very few investors ever make truly big profits of hundreds of thousands of dollars or more investing. You have to decide if you will be one of those few who become wealthy from investing.

In my opinion, the period beginning right now and for the next 6-12 months may be the most opportune time to buy some of these REO, foreclosure, and short sale properties. Now the type of deals I’m talking about are not just sitting around waiting for you. You have to be looking (or have someone looking) to find them. You have to be able to buy and close on them as soon as you find them. (The bank doesn’t give out their bottom dollar pricing for the investor who needs 60 days to close and takes forever to get paperwork to the bank. The banks want buyers ready and able to obtain financing and close ASAP and nothing else.) These amazing deals are hard to come by, and it will take a large amount of time for either you or your agent to find them. You need to be one of the first to see the homes — nothing else will benefit you as a buyer. Only work with a real estate agent who understands the process, how these properties convey, and how to negotiate with the banks or the sellers involved. Otherwise they will get rolled over and be of little value to you or your real estate investing goals.

I think that the investor who looks to buy soon and is willing and able to wait out the downturn a little will reap big returns. Think of it this way: many areas of town are down 15%-25% since 2005. Tucson’s economy is among the best in the nation. Tucson’s population is growing by 25,000-30,000 people per year, all of whom have to live somewhere, AND interest rates are currently about to go back to the high 5% range. Does it make sense that some homes are worth three-fourths of what they were worth only 2 years ago?

One note of caution: do not think for one second that the real estate market is going to just shoot to the moon. It will take time for the recovery to happen, how long, no one knows. When it does, don’t say you were not warned about what to do to profit from the mass psychology of the current marketplace.

This entry was posted on Saturday, December 1st, 2007 at 5:17 pm and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.