Real estate investors are scooping up the deals and making millions.  Right?  Wrong!  I met with an investor the day before the Thanksgiving holiday, and he  was ready, willing, and able.  Like the vast majority of real estate investors   around the country right now, he is having trouble pulling the trigger on a buying decision.  Why?

People think the general state of the real estate market creates grand opportunities for investors, and it does, but only in a general sense.  The fact that the real estate market is in a major slump undoubtedly creates an environment of opportunity.  But an investor must find that diamond in the rough, and that is not easy.

We’ve all been talking about how many foreclosures there are, and it seems every day there is another news headline about the large numbers of homes in foreclosure.  But try to find a single home in a good area that has the parameters of a good investment, such as three bedrooms, two baths, a double car garage, including one that will crunch the numbers you need, well . . . that’s a horse of a different color.

Intelligent investors are not interested in junk, and there is a lot of junk out there.  There are homes in unattractive areas that are not going to rent or sell well.  Forget those.  There’s a home in a nice area, but the retired couple that owned it built only two bedrooms and an odd kitchen.  Forget that.  There is a nice three bedroom, but it only has one bath, and the home is built on a potential mud slide.  There’s a cute cottage on a busy street.  No.  There’s a perfect home in foreclosure, but the current owners are obstinate, and so that one won’t be available until the Trustee’s sale when there are 227 other people competing to buy it.  Don’t want to go there.

When you do find one (have you got 40 hours a week to do research and drive around?), the numbers have to crunch for you.  If it’s going to be a good investment, you have to be able to pick up some equity, and it’s hardly worth investing if you can’t pick up $20,000 to $80,000.  After all, you’re going to have to put some money into it to fix it up or make it sellable, and you’ll have carrying costs and selling costs.  If you want to flip houses, you’ll have to sell well below current fair market value, which means you definitely need a good chunk of equity built in to your investment from the beginning.

One has to be very careful buying homes in distress.  A successful investor I know purchased a foreclosure home at a Trustee’s Sale at a seemingly good price, but later discovered the timbers in the crawl space have to be replaced because of dry rot.  All his profit just went poof!

This is why it is not so easy to be a real estate investor, even in times of plenty.  There are plenty of houses for sale, but finding the perfect investment project is definitely a struggle.  They’re out there, but good luck finding them.

Enjoy this post? Subscribe to my RSS feed.

You can invest in real estate without owning any real estate.  For example,

1. You can buy notes (secured by a deed of trust) at a discount, or
   
2. You can buy a Real Estate Contract, aka Land Contract, at a discount.
   
3. You can buy an Option to Purchase property and either exercise it or assign it for a profit.
   
4. You can assign for profit a Purchase & Sale Agreement.
   
5. You can assign a lease for a profit.
   
6. You can buy out a party being foreclosed on and deal with the secured party, and sell the property before it ever gets in your name.
   
7. You can buy out a troubled party and obtain a Quit Claim Deed, and then sell that paper.
   
8. You can wait until property has been foreclosed, and go to the secured party and buy the rights to own or re-sell the property.
   
9. And there are many more combinations.
   

Red Flag:  These transactions are not for the faint of heart.  These are advanced techniques, because there are so many traps for the unwary.  A thorough understanding is critical to avoiding disaster.  I’ve handled all of these, either as a real estate attorney or Realtor.

Enjoy this post? Subscribe to my RSS feed.

In a free enterprise system, markets go up and markets go down. This is the cycle. Out here in Washington state, especially in King and Pierce Counties, and even here in Clallam County on the Olympic Peninsula, in 2005 homes and land sold quickly at greatly appreciated prices. In rapid appreciation, builders over build, and the mortgage market gets creative, coming up with new ways to get otherwise unqualified people qualified for loans. The party had to end. Now we wait to see how long the hangover will last. But, and this is the good news, those with money now or who can get the funds, stand to make a lot of money investing in real estate NOW, because the market eventually will return to steady and slow appreciation. Houses are still selling, because there are qualified buyers moving into the area. In the long run, real estate has been a strong and reliable investment in western Washington. For a great resource on investing in real estate in Sequim and Port Angeles, read more at:

http://freerealestatelaw.com/Investors.html

Enjoy this post? Subscribe to my RSS feed.