The Upside to Real Estate Investing, Part 2

Following up Part 1 of this series, I highlight a key market force that will support local real estate investing in the near future… oversupply.

While I know that it may feel like it is hard to find strong deals in your market these days, this is not because of a lack of deals.   According to RealtyTrac, there are currently more than 1,200,000 properties that are in foreclosure (either defaulted on mortgage, currently being auctioned or bank-owned) CLICK HERE.  These numbers are improved from recent years but still high relative to what we would consider a stable market.  This unprecedented amount of distressed real estate not only gives you a lot to choose from, but puts downward pressure on average home prices in most markets.  Regardless of the year-over-year improvement in foreclosure statistics, we are still in a unique time with respect to your ability to pay bottom dollar for investment property.  With a high level of distressed property in the pipeline at Fannie, Freddie, HUD and the major banks, investors should be able to benefit.  Ironically, it may well be the very thing that got us into this housing mess (shareholder demand for earnings growth) that will perhaps get us out.  Bank stock shareholders will get tired of sub-par quarterly earnings (resulting this time from expenses associated with holding all of this distressed real estate) and the banks will be forced to do something about it.  The last time around, the solution to quarterly growth was to package risky mortgages, pay off the ratings agencies for investment-grade ratings and sell these packaged mortgages to institutional investors.  This time it will likely be to finally sell the collateral (at a meaningful discount) that secured those risky mortgages so the banks can clean up their balance sheets and move on with life (an interesting symmetry here if you ask this writer).

The deals are out there if you know where to look.  Keep thinking outside the box and turning over rocks where you think there may be nothing.