Making Money in Real Estate

The recent downturn in the real estate market has forced many properties into foreclosure or short sale. For many investors, however, this mass availability of cheap property is setting them up very well to make a fortune in the next real estate boom. If you’re thinking of joining in, it’s important to understand how to make money.

The recent housing bust has forced a lot of people who thought they were going to become millionaires to get out of the housing industry entirely. Many of their properties were handed back to the banks that held the mortgages on them. This has forced the banks to sell these properties at a substantial discount. For people with money to invest, this glut of foreclosures and short sales has created the perfect time to add to real estate to their portfolios. Right now, it is estimated that about ten to twenty percent of homes on the market are short sales or foreclosures. This has had the effect of not only creating a strong supply of homes for sale, but also of lowering prices on these homes.

The large number of homes that have gone into foreclosure or short sale has created a huge amount of excess inventory in the real estate market. In fact, it is estimated that it would take between eight months and two years to sell every house that is currently on the market if new homes were to stop being added immediately. As with any economic activity, a large amount of supply combined with a small amount of demand is resulting in lower prices.

Furthermore, the fact that many of these properties are owned by a bank or other large financial institution is also putting downward pressure on prices. Unlike private owners, banks are much more willing to sell a property at a loss if it means they can clear the property off their books. This means that many investors are seeing houses sell for a fraction of what they would have cost several years ago. In fact, there is a large supply of three bedroom, two bath homes that are selling for less than $100,000.

In addition to these factors, the federal government is keeping interest rates on Treasury notes at an all-time low. This means that the cost to both investors and private individuals to finance a home is at a historically low level. Being able to get a cheap mortgage not only saves an individual hundreds of dollars a month on his or her mortgage payment, it also has the potential to save that individual thousands of dollars over the life of the mortgage on interest and other financing costs.

In order to take advantage of the next housing boom, an investor should purchase as many properties as possible at these discounted rates. While waiting for prices to recover, rent the properties out to tenants. Fortunately, the large number of people who are unable to purchase a home right now means that the rental market is very strong in the same areas where housing prices are cheap. As soon as the sales prices of homes goes up, sell your inventory.