Many speculators have made a ton of money over the last 5 years because of foreclosures. But they’ve either taken on a great amount of risk or they’ve worked very hard to make their profits. As always, there are a few who got lucky and were in the right place at the right time, but in most cases, foreclosure investing is either a big risk or more trouble than it’s worth.
When it comes to investing in foreclosure real estate, in todays market, it’s necessary for someone else to accept a loss in order for an investor to make a profit. In most cases, it’s the seller who ends up suffering. Many people think they are doing the seller a favor when buying their home, but in reality, unless they are paying approximately the market value, it’s harmful to the homeowner. This is such a problem in some states that they’ve adapted laws against investors acquiring a home in foreclosure and then quickly selling it for a profit.
Countless real estate investors have also lost all their assets by getting into the market with the wrong property. Prominent individuals, developers, and corporations have all lost millions due to wrong speculation in the real estate market. With the state of the world these days and the government printing and giving away money that it will never have, it’s just a matter of time until there is a complete financial meltdown. Expecting a property value to increase is just reliable in the foreseeable future.
For example, a private investor I know in Cleveland found several homes that (at one time) were valued at $80,000 to $120,000 and because of the market and foreclosure rates for the neighborhoods, these homes could be bought for around 50% of the estimated value. In previous times, this would be an investors ideal situation, so he purchased as many homes as he could get approved for. Almost one year later, the value of every single home was less than $20,000. Without a doubt it was devastating for him and his family and so far he has lost approximately one million dollars because of this investment. I hear stories like this, and worse, every single day and because of this, I highly recommend beginner investors stay away from foreclosure real estate investing.
Another serious issue with buying foreclosure property is all the federal, state, and local government involvement. With the foreclosure laws changing on such a regular basis and all the fraud and misconduct going on, making a income with a foreclosure property is not only very difficult, but it can actually be illegal under the right circumstances! I would rather stick to a safer bet, one that doesn’t involve the risk of ending up in prison.
Many people are also getting into mortgage modification or forensic loan research businesses. If you are looking for a working investment and you can obtain the proper permits from your state, you may succeed. But the government is making it harder and harder to own this type of business. The fact is, they don’t want homeowners to use “for profit” companies. They only want homeowners to get help through government programs or directly through the lenders. This way they have more control over the deals that are agreed to. This helps them control their own profits and losses with all the new bailout plans. Getting into this type of business at this point in time will likely end in disappointment because of updated regulations and the many similar businesses who already do a great job helping their clients.
A better plan would be to invest in a company that is already profitable when helping clients save their home from foreclosure. A business that has already obtained the proper licensing and has withstood the many hardships of this industry. These businesses can be unbelievably profitable and many of them would welcome new investors. At ForeclosureFish, our main business is finding clients for other mortgage modification or short sale companies and we know that many of them are constantly asking about investors.
We have a similar program with our company that allows investors to invest without as much risk and without any physical work. Investors can participate in a marketing program that obtains clients who are facing foreclosure for our established clients. In exchange for funding the marketing, the investors share in any of the profits obtained. This type of investing is more secure in todays market, because fluctuating real estate values can actually help the investment. Although government laws and regulations can still effect the returns. This type of investing may not return the large profits that some (successful) foreclosure real estate investors see, but a steady 20%-40% return can be a nice addition to any portfolio. This type of situation also allows investors to start on a small scale and increase it as the business grows. This will also mitigate a lot of the risk with this type of investment.
If you have been thinking about getting into the foreclosure real estate market, or other options to invest in the foreclosure industry, then make sure you gather as much information as possible before diving in head first. As with any investment, doing a little research up front will pay off huge in the long run.