Personal Finance and Investment

While the property market is going down and demand for mortgage loans decreasing, many banks and other lending companies are introducing unconventional and at times riskier mortgage plans to establish new business and revive their declining business.

A lot of lenders have introduced mortgage schemes intended to reduce monthly loan premiums and to assist borrowers to easier qualify for bigger loan amounts, while others ask less documentation during the approval procedure. This kind of loans do increase success rate of getting mortgage for some people, but they also can increase the odds that some borrowers may eventually face foreclosure. For a real estate investor or property buyer such market situation represents a window of opportunity.

As property capital value appreciation rates slow down, more mortgages fall into default. Foreclosure notices have recently increased, giving yet another signal of a decline in the real estate market in the U.S. For instance, in San Diego County, CA. Banks and a few lending companies just in the third quarter have sent over 1000 letters of default to borrowers, a notice that provides homeowners 90 days to consolidate their mortgage debt before starting a foreclosure auction.

At the peak of the real estate bubble, the huge rises in home equity could allow customers to withdraw money from the enlarged home equity to enjoy a life style that they could never afford before. Having got the chance to use home equity loans, homeowners have withdrawn cash to buy new cars, jewelry, furniture, vacations and various luxuries. Another improvement in their life styles was provided when the homeowners refinanced homes taking a variable-rate mortgages that reduced their monthly payments.

But today the situation is changing, in many regions of the country real estate prices are saturating or even not increasing at all. With a tiny or no rise in home equity, or even diminishing equity, homeowners might eventually find themselves in a difficult position.

There are also additional factors that make impact on the property market: New federal laws have issued an increase in the minimum mandatory payment on credit card debt. For a lot of customers that payment will now increase twofold. And, as energy costs and health care fees keep rising continuously to new unparalleled heights, increasing the number of people who are in financial situations where money spent are greater than money earned.

Whether you are a first-time real estate investor or experienced veteran, the present market situation offers you a window of opportunity to shop around and purchase real estate right before foreclosure. An increasing number of homeowners have pulled out most of their equity (sometimes more than 100% of their house’s value), and today, when the property values have declined, they are now upside down - when they owe more money than the price they can sell the home for.

Locked in a position where they can neither consolidate their debts nor  find a buyer for their house, real estate investors who comprehend the default process can come up with a solution that offers the homeowner trapped in default a means to avoid their mortgage payments and for the investor himself an opportunity to secure a property in the process.

Whether you are a newbie or a true expert in real estate investing, it’s crucial that you are aware of these 7 Simple Steps for investing into real estate.

Real Estate is definitely NOT a get-rich-quick system. Nevertheless, if you discover the basics and put them effectively into practice, you can earn enough money to make most of your dreams and goals come true!

The real estate business is not going to blow out! However, the real estate market will shift and change - just the way it always has been! What is “hot” at present, may turn “icy” in a few years (or sometimes even in a few months). Despite that, there is always a number of ways to bullet proof your real estate investments. And it’s rather simple.

According to statistics, in 1975 the average home price in the United States was $33,300, whereas by 2005 it increased to $195,000. Historically, the median home price doubled every seven years. A simple math will show you that by now the price should be well over $200,000.

This is to say that the real estate market will CONTINUE TO CHANGE, and what is working now, may not work in the near future. For example, the rental business was quite strong just a decade ago, but has become rather weak over the past few years. The business is about to take a new turn once again.

In fact, Real Estate goes in cycles and, therefore, has a certain degree of predictability. Due to this predictability, you have an opportunity to develop your real estate business into a cash-generating machine, which runs by itself following changes in the real estate industry. In fact, it is feasible to make money in real estate at all times, and now is just as good a time as any other to embark on real estate investing.

However, you should make your investments wisely. Surely, you can make some big money during the pre-construction phase, but what happens when the property market shifts and, all of a sudden, there are 40 almost identical flats for sale in the same building? How long can you sustain a negative cash flow on your property?

What about taking possession of property ’subject to’? It’s definitely a wise strategy and lenders may be tempted to turn the other way and not enforce the “due on sale” clause provided that the interest rates are sufficiently low (be aware that the sellers of a ’subject to’ property usually don’t have the lowest interest rates). E.g., if the interest rates rise to 10-11%, it’s pretty clear that lenders may be much more inclined to implement their option making you pay off the 6.5% note!

To avoid that kind of problems, you must learn the basics - the tried and true methods, systems and strategies, which have proven to work in the past, are working NOW and will likely to work in the future. You need to have all the tools at hand in order to go with the flow and not be influenced by the real estate market shifting and changing (It’s already doing this anyway, in case you’ve skipped the intro!

Step No.1 - Lay down your plan: Decide what your long term goals for the Real Estate investing (e.g., financially secured retirement and wealth accumulation) and your short term expectations in respect of making money in real estate are. Then, set up appropriate business entities and put the plan to work.

Step No.2 - Decide on your target market: You cannot possibly try all things on all real estate markets. If foreclosures look attractive to you, start with investing in the foreclosure market. If you decide to become a landlord, concentrate your marketing efforts at out-of-state owners.

Step No.3 - Be unswerving and persistent: As we said before, Real Estate is not a get-rich-quick business. Real Estate is a way to grow your wealth over time and put some extra cash in your pocket tomorrow. You have to stick to your plan and follow it in order to see some good results in real estate. Besides, you need to continue furthering your education and increasing your experience.

Step No.4 - Do not fall prey to the “Analysis Paralysis”: Learn how to analyze properties for profit potential quickly. Do not spend too much time on thinking; instead, try to answer these simple questions: How much is the property worth to you? Does it requires repair and how much would it cost? What can you sell the property for? In the end, it’s all about numbers!

Step No.5 - Become an expert in finance: Real estate is a business that involves both finance and marketing. You should research all available information about mortgages and loan programs on the market. You should learn how to use finance efficiently to negotiate better deals and to sell out your properties.

Step No.6 - Become skilful at solving problems: You will be able to get deals that other real estate people won’t, if you can learn to solve people’s problems. Anything goes on the real estate battlefield. Watch out and be ready!

Step No.7 - You should continue advancing your education: It is crucial to keep investing in your education, learning new strategies and tactics that will help you make more money in the real estate business.

If you liked this article, make sure to read other articles in this category, which discuss the ways to Make Money on Real Estate.  The next article addresses Step No.1 - Laying down your plan in detail!

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