Couple of notable stories this morning on the front page of the LA Times' business section. The first was a piece on foreclosures in the state of California hitting a 10-year record high, and in the second article, the Times covered mortgage giant Countrywide's announcement yesterday that "a growing number of customers once considered to be good credit risks were having trouble making their mortgage payments." Hmm, smells like a financial market normalizing to me, after years of over-appreciation in the once red hot California housing market.
Our co-founder Mike Davin was quoted in the article on foreclosures. The thing is, is this really any surprise to anybody? Financial markets are cyclical, yet every 10 years, people inevitably get caught up and overconfident when things are on an upswing and despondent when the market comes back down to normal.
When applied with a little patience and know-how, real estate as an investment vehicle can be a viable, long-term, and stable strategy despite the circuitous dips and turns that the market will take. Yet witness the haphazard foreclosure "seminars" that crop up every 5-years coinciding with stories of the market's impending demise.
Quick, get-rich schemes are as old as the day is long, and these "create wealth" seminars through real estate and foreclosures are almost always quick on promises and extremely lacking in actual substance. They play to people's basest instincts to achieve grand results with minimal effort.
There are no easy ways to acquire wealth. Real estate investing is serious business that requires patience and a kind of discipline that you won't just wake up with one morning because you attended a weekend seminar, read some pamphlets on how to snap up foreclosures in a heartbeat, and finished a book.
Keep these things in mind when contemplating entering the current REO fray:
1) Once a home hits the foreclosure stage, it's usually too little, too late for the opportunistic home buyer.
2) The market in foreclosure-heavy locations is likely to go down another 10% so why be an investor in these areas?
3) If you want to buy a home for your family, the best bet is to search for bank-owned listings that are currently on the market. They are usually the best-priced homes with the most motivated owners. Buying a home at auction comes with a huge risk including no title insurance, no bank financing, no prior inspection, and liability for hidden IRS liens.
4) If you are selling a home, you better be competitive with the similar bank-owned listings or your house will not sell. If you are planning on selling in six months, why wait when you know more and more homes will be put on the market at rock bottom prices?