Homeowners are facing an economic crunch from the housing crash, but investors often face even more severe repercussions. More than 1 in 3 foreclosures are of investment properties, and should the foreclosure epidemic worsen as forecast, that number is expected to rise as more investors walk away from mortgages.
During the real estate boom investors and speculators bought homes, fixed them up and many sold within months. But the real estate crash prevents them from doing just that. Living in a home intended to be an investment property has become the answer for some investors, while others select to rent the property. More than 240,000 homes sit vacant nationwide, according to the U.S. Census Bureau.
A key strategy of buying a home to flip has gone by the wayside as more and more real estate investors purchase properties for the long term. Just when and how long it will take to reap profits from their investments is an uncertainty with some economists saying that it could take more than 10 years for the market to become healthy enough to make a good profit.
In his book “The Millionaire Real Estate Investor”, Gary Keller, founder of Keller Williams Realty International, keeps a basic theme: “Buy real estate right, pay it down and pay it off.” The ultimate goal should be to own lots of real estate free and clear for maximum cash flow. That mantra is attracting millions of investors and wannabe investors back into the depressed housing market to invest.
Whatever the length of time, investors still seem ready, willing and able to take the leap into real estate. During the boom investors in Las Vegas, Nevada purchased thousands of properties, rehabbed them or didn't even do any work to the structure, slapped up a for sale sign and sold the property before the first mortgage payment was due, drawing the criticism of owner occupants in neighborhoods all around Sin City. But those days have long passed and Las Vegas has the distinction of being the worst foreclosure market in the country.
Real Estate speculators typically buy property to make a fast buck without doing work to repair the property, and they are finding themselves in even more trouble these days. The practice paid-off big time during the boom but has landed many speculators in bankruptcy court.
The trouble has added to an over-abundance of property on the market, and is one of the main sectors compiling the record volume of foreclosures. Las Vegas is one community considering a proposal to out-law flipping all together, but whether the movement ever becomes reality is another question considering legal property rights. The FHA now requires a one year (seasoning) period for a home to be resold in order to get a new mortgage and other lenders are considering the same rule.