Prospects of increased foreclosure inventory on your ROI

Prospects of increased foreclosure inventory on your ROI

As you might have noticed, more and more homes are going into foreclosure.
I've predicted this for over a year now and just read some reports that reveal some interesting stats.

For example, a recent article in the Arizona Daily Star, outlines the exact reasons and problems that have caused this sharp increase in the recent weeks and months

SEE:
"Foreclosures go up sharply here
Trend linked to slowed home sales, inflation, adjustable rate mortgages
By Joseph Barrios
ARIZONA DAILY STAR
Tucson, Arizona | Published: 06.04.2006"

Now, how does this effect your ROI and should you hold off on investing in foreclosed properties.

This is a valid question and one that I am asked often.
Truth is that noone knows what the economy will look like in 3, 6 or 12 months.

We only have historical data and some stats to try to make some intelligent choices.
For example, most of the Real Estate industry experts predict a steady growth in sales and prices over the next 18 months.

Is this biased or factual? I don't know.

This is how I evaluate a property and the exact steps I take when selecting a foreclosed home.

First, I look at the 30 day pricing of houses in the area.
30 day pricing is "what price should I list a home in order for it to sell in 30 days or less"

This data can be gathered by contacting some Real Estate agents in the area, or by looking at sold reports on Yahoo Real Estate section.

Then, I make my offer for at least 20% below that if I don't have a ready buyer or 10% below the 30 day pricing if I do have ready buyers in the wings.

Either of the above situations guarantees me a quick profit.

Another method is the flip system discussed in my earlier blog posts.
This is where I don't even own the propert and simply assign the rights to a new buyer right in escrow for a fee of $5,000 or more.

Ok, so here are some numeric examples.
Pre-foreclosure home with total owing to the bank = $500,000
30 day price for this house = $525,000
I'll offer $420,000 to the bank if I don't have a buyer
or offer $472,500 if I have a ready buyer

I'll take a no point no cost no prepayment penalty mortgage and let the mortgage broker pay all my closing costs.

This will cause the interest rate to be slightly higher, but so what, I'm selling it in 30 days or less.

If my buyer backs out, I'll price it at $520,000 which is below the 30 day pricing and sell it quicker. Even before the first mortgage payment.

Please keep in mind that all of this is speculative and things don't work out so perfectly in the real world.

However, if you follow the example above, your chances of success and repetitive profit is extremely high.

As always, consult a professional before investing your money.
This blog is for general education purposes and not meant to be legal or real estate advise.

Good luck and happy investing

filed under: foreclosure investing




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