Photos
Dr. Kalinda Rose Stevenson
If You Are Thinking About Buying Foreclosures, Ask Yourself This Question
Welcome back!
Are you thinking about buying foreclosed properties? If you are thinking about this, know that you are not alone. Anyone who has even the slightest interest in real estate investing is probably thinking the same thoughts.
All across the United States, and in other places around the world, property owners are losing their properties to foreclosure. Blame it on corrupt mortgage brokers, greedy bankers, and unqualified, irresponsible buyers, if you want. Whatever happened to cause foreclosure for any particular property owner, the harsh reality is that one person’s loss can be another person’s gain.
As foreclosed properties lie empty across the land, thousands of people see the potential for wealth in buying foreclosed properties.
And so, you are right to recognize that this is a time of tremendous opportunity to lay the foundation for wealth creation by buying foreclosures.
If you get out your calculator, you can get excited about the possibilities as you crunch your numbers. If you can buy some of these foreclosed properties at a fraction of their market value only a year or two ago, just think of how much money you will make when the market rebounds and prices go up—as they surely will, sooner or later.
While so many other potential buyers are too afraid or too broke to buy, or they can’t get credit to buy, you can scoop up prime properties at bargain basement prices.
How do you do this? If you have the cash, or if you have excellent credit , and if you can get a mortgage, or if you can get private funding, this is the ultimate buyer’s market. If you can hold the properties, while so many other owners are losing their properties to foreclosure, and if you can rent them to responsible tenants who pay the rent on time, you can use the rents to pay off your mortgages in a record time. By the time the markets rebound, and the market value of your properties climbs up again, in the next real estate boom, you can be the landlord of an empire of real estate holdings.
This vision is certainly possible, and will very probably turn into reality for at least some of the real estate investors who see the potential of thousands upon thousands of foreclosed properties.
But….before you begin to calculate your future profits, there is more to consider. Before you seriously consider buying any foreclosed property, ask yourself this question:
What are you going to do with any property after you buy it?
Expressed another way, the question is: What is your strategy for foreclosure properties?
A strategy is a plan to accomplish a particular result. Strategy always looks at the intended outcome.
Especially now, when there are so many foreclosed properties available in the marketplace, it is especially critical to understand clearly that a decision to buy property is never a complete plan. It is a tactic, rather than a strategy.
Consider the difference between a tactic and a strategy.
Tactics are about what to do, and how to do it. Strategy begins with the question: Why? Why are you going to do something?
When it comes to real estate investing, buying property is a tactic. It is never a complete strategy, because you have not clearly defined “why” you are buying the property. Buying real estate becomes more than a tactic and becomes part of a strategic plan when you know “why” you are buying the property, and what you intend to do with the property after you buy it.
In the boom years of real estate investing, much emphasis was placed on buying property. In my chapter on “No Money Limits Selling,” in my book, No Money Limits For Real Estate Investors, I made this observation.
One of the greatest deficiencies of real estate training targeted toward beginners is the emphasis on buying without equal attention to selling. I have heard too many gurus exhorting their students to go out and make a deal. And so people rush out, determined to make a deal—any deal—and end up making bad deals. No Money Limits for Real Estate Investors, page 74.
The common wisdom of the real estate boom era was: “You make your money when you buy.” Because market values were climbing so fast, and credit was so easy to get, investors often made a lot of money by buying property without having a clear plan of what they were going to do with the property after they bought it. In those heady days, investors could buy property and then decide if they wanted to use tactics such as “flipping,” “rehabbing,” and “lease options.” Even without clear strategies when they bought, many investors did very well.
These are different times. You can buy property well below prior market value, but that doesn’t mean you can easily turn around and make a profit using the same tactics that worked so well during the boom times.
The reason lies in one simple word, “if.” Did you notice all the “ifs” in this paragraph?
If you have the cash, or if you have excellent credit, and if you can get a mortgage, or if you can get private funding, this is the ultimate buyer’s market. If you can hold the properties, while so many other owners are losing their properties to foreclosure, and if you can rent them to responsible tenants who pay the rent on time, you can use the rents to pay off your mortgages in a record time. By the time the markets rebound, and the market value of your properties climbs up again, in the next real estate boom, you can be the landlord of an empire of real estate holdings.
But the list of “ifs”—and this isn’t even a complete list of “ifs”—is formidable at a time when mortgage lenders are doling out mortgages only to borrowers with excellent credit and substantial down payments. This is also a time when people who might buy or rent from you are not only losing their homes, they are also losing their jobs.
Even if you have the cash, credit, or financial partners to buy the property, this doesn’t mean that potential buyers or renters will be able to buy or rent your property. In addition, you will need to hold the property long enough for the market to turn around, which can be months or years. You will also need to be able to pay taxes, insurance, and maintenance. If you can’t do all of these things, you could very quickly find yourself in a position where you are facing foreclosure of your investment properties.
In all of this, I don’t mean to throw cold water on anyone’s plan to seize the wealth creation opportunity created by the foreclosure epidemic. My goal is to encourage you to start at a different place than the idea of buying foreclosures at bargain prices. Make sure that you have a strategic plan that includes both how you will buy the properties and what you intend to do with them after you buy them.
Dr. Kalinda Rose Stevenson
Discover the secret of making money in No Money Limits For Real Estate Investors, 2007 Best Books Award Winner in Business: Real Estate Category
Tags: buying foreclosures, foreclosed properties, foreclosure, No Money Limits, real estate, real estate investing, strategy, tacticsRelated posts
When Creative Financing By Banks Gets Out Of Control
What is the basic cause of the financial crisis? It is the process called creative financing, because creative financing creates money. Creating money is different from mining for gold or drilling for oil. Mining and drilling seek to find something that already exists. But money cannot be discovered the way that gold or oil can be discovered. Money is an idea of value and is created in transactions.
The Monopoly Game involves players and a banker. The rules of game state that the banker cannot go broke. The significance of this rule is a critical element in No Money Limits. Yet, one of the dominating experiences of recent months has been the spectacle of banks going broke. We have seen banks receive billions of dollars in “bailouts” or “rescue” packages, and still go broke.
At its core, the economic crisis began with the banks, as they multiplied techniques to use creative financing to fund the real estate boom. The reason banks have gone broke is that the banks stopping playing the kind of role the banker plays in the Monopoly Game.
In Monopoly, the banker serves the players as a utility. The banker provides a useful function to collect and distribute cash, to allow the players to play a real estate trading game. In the real world of the real estate boom, the banks were no longer content to be utilities. Instead, the banks began to be drivers of the economy. The banks used increasingly creative financing techniques because they understood that money is not found. Money is created.
The root cause of the financial crisis is that people who understand the essential nature of money carried creative financing too far. They became ingenious in their methods to create money on paper, with a variety of clever techniques.
The bankers on Wall Street created an array of techniques, such as mortgage securitization, credit swaps, and derivatives. All of these creative techniques created more and more paper assets, until the whole system was revealed as so much mumbo-jumbo, and collapsed like a giant soufflé.
In the Disney classic “Fantasia,” one of the most memorable episodes is the “Sorcerer’s Apprentice.” The young sorcerer taps into magic he cannot control. Watch the ”The Sorcerer’s Apprentice.”
This is one of the best illustrations of what went wrong with the banking system during the real estate boom. The bankers tapped into the magical power to create money by using creative financing techniques and the whole process quickly got out of control.
[This is the second post in a series about how creative financing techniques, which created money out of thin air, led to economic crises around the world.]
Dr. Kalinda Rose Stevenson
Find out more about the nature of money and how money is created out of thin air in No Money Limits For Real Estate Investors: Discover The Money-Making Secret In The Real Estate Game That Transforms Your Money Struggles Into Financial Abundance, National Best Books 2007 Awards Winner in Business: Real Estate Category and Finalist in Business: Personal Finance Category.
Tags: bailout, banks, banks create money out of thin air, creative financing, financial crisis, money, real estateRelated posts
Syndicate
Subscribe to this site's RSS feed.