The real estate market and the term ‘Foreclosures’ are closely related. When you enter the real estate field you have to be prepared for the best and the worst. Chances are you may strike gold or you may be left disappointed. Every coin has two sides and real estate has its own risks. Foreclosure is one. As a real estate expert, I (Jeff Adams) have helped several people understand the concept of Foreclosure. Let me help you too.
Foreclosure simply means seizing of the property by the lender due to the inability of the owner to pay mortgage loans. This happens due to many reasons like divorce, arrest, migration and other reasons due to which the mortgagee is unable to pay the principal amount. Few owners even choose to go into foreclosures voluntarily. Foreclosures have been on a constant rise since a few years now.
Advantages of Foreclosures for Property Buyers
Everything has its own advantages and disadvantages. Similarly, foreclosures too can be very advantageous and profitable. While some people lose you gain, that’s the rule of almost all the games. The key is to exploit the situation to its fullest and seize the opportunity. How?
Property under foreclosure can be purchased at a lower rate. Mostly, the bank or the money lenders sell these properties off at extremely low prices because of the huge loss they might incur. This is why during such scenarios the properties are sold at amazingly low rates.
And in general, the demand for good property in the market is always high. So you can actually sell the property at the higher price (depending on market conditions) and make a neat profit for yourself.
Another aspect of a property under foreclosure is that it is always sold in the same way as it was seized. So it may not really be a very bad or dilapidated condition, as someone is actually living there at the moment. So it may just need some basic repair work or some basic amenities may need to be replaced to convert it into an exciting prospect in the real estate market.
Foreclosures and Interest Rates
Foreclosures can impact interest rates in several ways. Most credit card companies slip in a clause that they will increase your interest rates if you default on other loans. When someone has reached the situation of actually not being able to pay back mortgage on his home, it means there are definitely other loans on which he has defaulted. (Mortgage payment defaults are usually the final straw, because home is precious to everyone). So the interest rate on those loans increases, making a bad financial situation even worse. Not only are home owners in danger of losing their homes due to foreclosure, their financial woes go on increasing due to increased interest rates. And home owners may need to keep paying higher interest rates for long after the situation has resolved, because their credit ratings take a severe blow.
The popularity of Adjustable Rate Mortgages (ARMs) in the housing market is increasing the number of foreclosures. With ARMs the borrowers can make minimum interest payments on the loan. Naturally, the unpaid interest gets added on to the principal, making size of the loans larger, thus increasing chances of foreclosure.
And from a different point of view, when the number of foreclosures is high, it affects the borrowing capability of society at large.
Hedge Funds and Foreclosures
There might have been news on foreclosures recently but with the signs of accelerating world economy, the directly correlated market is moving upward. During such scenario’s you have the arrival of the hedge funds. These funds conceive that there is achievable profit in foreclosure properties and are ready to seize it. So what exactly do hedge funds do?
Hedge funds buy and sell undervalued securities, invest in any market, and any opportunity where there are huge gains at a decreased chance of risk. Current market trend is that hedge funds are buying up the foreclosed properties to convert them into single family rentals, perhaps, waiting for the right time to sell.
The huge amounts of money hedge funds spend on foreclosures are clearly impacting the real estate economy. Having a massive pool of financial funds in their pocket along with the high end information, these are entities that I would refer to as table turners. There always is that one point, one turn, one reason where tables turn and the entire game takes a different route. In case of real estate investing, particularly in the area of foreclosures, the hedge funds are the game changers in my opinion.
In Conclusion
The world of real estate is definitely an enticing one. It holds you back with a great number of opportunities. All you have to do is be a hawk eye, to be on your toes, to keep a watchful eye and be aware of every current scenario in the market and economy to get on to your road to success. This is one field wherein a foreclosure that is a loss or bad news to someone else will go on to change the game and be your desired gain.
