During the housing boom, mortgage lenders were allowing just about anyone to buy a house or refinance their existing house. We have seen the result of such liberal lending practices in the form of the largest foreclosure crisis in history. Many real estate investors take a careless approach in times like these; buying houses anywhere, certain that appreciation is right around the corner to make them instant millionaires. Before you go on a buying binge, you’ll want to note some sobering indicators of what the market is actually doing as of April 2010: One in 14 mortgages (3.5 million) are at least 90 days delinquent as homeowners have realized that banks are more willing to reclaim their homes than modify their loans. These homeowners are literally walking away from their homes, and their mortgages, as two million of these mortgaged homes are over 180 days delinquent. If you thought that the real estate market was on the brink of improvement, think again. The delinquency rate of mortgaged homes is 65% greater now than just a year ago.

These numbers are a telling reminder that prospective homeowners and active investors will need to hold on for several years before the market cleanses itself, causing prices to rise again. Current foreclosures will take years to work through the system and hit the market. Banks are overloaded with inventory and we have already seen evidence of banks “price fixing” by intentionally withholding foreclosures from the marketplace in an attempt to rake in top dollar for home inventories. Current foreclosure victims of the recent past will have marred credit; keeping them from buying a new house for several years. Their inability to buy, among various other factors such as high unemployment, tightening of credit guidelines and lower wages to working families will continue to defer home value appreciation. Real estate prices are low and will continue to stay that way for several years; but this doesn’t mean homeowners and investors should stay away from the real estate market altogether. It just means that they need make calculated decisions when buying a home so that the coming wave appreciation will exponentially enhance their wealth. One such decision is picking where to buy a house.

Urban areas/inner cities

Lifelong renters, many of which receive government housing subsidies like Section 8 or FIA, make up a large portion of inner city populations. It’s important to note that the sub-prime meltdown began in large cities as mass amounts of liberal credit was given to people who would normally be renters. Credit was also extended to investors who personally bought dozens of homes and walked away from them as the market began to digest itself. We see evidence of the foreclosure crisis in the form of boarded up homes, high unemployment rates and crime.

If your plan is to purchase homes to flip in inner city areas, there are several obstacles standing in your way. For starters, credit guidelines to potential buyers are next to impossible to overcome right now. How can you flip a house if potential buyers can’t get a mortgage? Secondly, even if you have a qualified buyer in hand who wants to buy your home, chances are the appraisal will come in much lower than expected, killing your deal. Lenders will make up any excuse to not lend in areas with a high “F-score”, which is lender terminology for the percentage of foreclosures in any given area. Another problem for urban investors is that qualified inner city home buyers are now migrating to the suburbs versus staying in high crime areas like inner cities. This increases the amount of vacant homes on any given urban block; and vacant homes breed crime. An investor’s inner city rehab project may very well be broken into multiple times during the renovation process. Thieves love new hot water tanks, furnaces, carpeting and kitchen cabinets; I know this from experience.

Even buying in urban areas or inner cities right now for rental cash flow is an oxymoron. People are coming from all over the world to buy houses in cities like Detroit, Indianapolis and Cleveland for under $2,000 knowing that these houses will easily cash flow; or so they think. Where is a landlord’s cash flow going to come from with unemployment so high? Also, houses that sell for the price of a mountain bike are usually in horrifying areas; the numbers look great on paper, but reality is different. Investors who believe government subsidized tenants are the way to go should note that many of these potential tenants are leaving inner cities for the safer suburbs. On the other hand, many permanent inner city renters live like nomadic animals and literally trash a landlord’s house before moving on to their next unsuspecting victim. Good luck suing tenants like this for damages; many low income inner city tenants aren’t collectible because they don’t work.

With appreciation years away, stay away from inner cities unless you plan to wholesale houses to cash investors who don’t pay attention to the above risk factors. Be a middleman in the inner cities without owning anything. Continually market to find desperate sellers and hungry buyers, then link the two together for commissions you set per deal. Banks hate lending in inner cities right now, therefore seller financing reigns supreme on homes with nothing owed. Only practice seller financing if you have experience as a real estate investor or you truly understand the process with legal counsel handy. Some investors are buying houses dirt cheap and setting seller financing terms of $500 down, with a $500 mortgage payment per month, and buyer makes all repairs. Contrarily, street-smart landlords who have years of investing experience can survive via tenants with subsidized housing vouchers and time tested skills. New investors should stay away from owning anything inside inner cities at all costs until times get better.

Suburbs

The foreclosure crisis will continue to unfold in the suburbs as banks continue to be reluctant to modify homeowner’s loans. Frustrated homeowners are simply walking away, knowing their personal efforts to save their houses are futile. This is spelling out “opportunity” for some wise investors who are buying properties at county courthouses while the delinquent homeowners are still living in them. Once an investor makes the purchase for a price far below what the homeowner owes the bank, the investor then contacts the homeowner and explains that he is the new owner of their home. Terms are reached and monthly payments are set in these “lease to own” transactions. In time, the homeowner can opt to purchase the house back from the investor for prices up to 40% below their former outstanding loan balances. This strategy not only saves the mortgagee’s home, but also saves their credit. Investors who are practicing this strategy are forming partnerships, money pools or already have cash/credit lines to make these acquisitions.

Investors need to be aware that banks are intentionally withholding foreclosures from the marketplace, creating a fake supply/demand curve. One of the nation’s top REO agents reported to us that homes listed for just a day sometimes receive more than 20 offers; while millions of other homes sit on various bank’s books. One reputable insider explained that banks are expected to start releasing these homes in August 2010, which will drive suburban home values down further. This doesn’t mean to avoid buying in the suburbs; it just means to be very careful. Only settle for the best deal, just in case a flood of foreclosed homes hits the market, driving prices lower.

Though buyers will have to pay more for a house in the suburbs versus the inner cities, finding good tenants is hardly a problem. Many suburban tenants are past foreclosure victims who are killing time until they can become buyers again. Others are government housing subsidized tenants escaping the inner city. No matter the case, buying to hold in suburbia seems to be safe; but with appreciation years away, landlords are going to have to be patient and select only the best long term tenants.

Young, new home buyers are fueling real estate and they all want a good deal in the suburbs. If you can purchase really low as compared to other homes in the neighborhood, rehab the home to standards much higher than other listed homes, and price them better than other homes in the area, you can do well. Several talented investors are staging homes with furniture and even throwing in items like TV’s, or in some cases new appliances to entice buyers. Even though the suburbs allow for rehab flips as an exit strategy, many neighborhoods have sellers trying to short sell their homes. This creates price competition for investors looking to sell for profit. Watch the numbers on every deal you do and be aware of what other sellers are trying to do in the areas you invest in.

Arizona always has been very popular for the real estate investor. Canadian investors are having a tremendous impact on our current market. The influx of distressed properties, including short sales and REO’s, are attracting investors by the thousands. There are some precautions every investor should heed to prior to investing in any real estate venture.

Do not go it alone. Educating yourself as much as possible is always encouraged. Each State has different laws and every market is different than another. Hiring a real estate professional who works in the market full-time is a real plus. You should consider hiring a real estate attorney and CPA for concerns outside the boundaries of a real estate agent. Investing with the help of these consultants could save your thousands of dollars in your investment strategy.

Patience is your best virtue, especially in today’s market. It can take months to get an accepted contract from the seller or bank. If you make an offer on a property that appears to be a great bargain, plan on waiting it out. Impatience could cause you to lose that great investment.

Be sure to work with an exclusive buyer’s agent. One of their fiduciary duties is to make sure you get the best possible price. We never want to overpay for property. On the flip side of the coin, if we get greedy and make too low an offer, we could lose a potentially great investment, even at a higher price. Another factor to consider is the fix-up or repair cost. If you underestimate these costs it could eliminate your equity rather quickly.

A fair warning to investors is “do not believe everything you hear”. There are no get rich quick schemes. Investing in real estate costs money and requires patience. If these decisions were quick and easy, everyone would be rich and the economy would be booming.

Once you have located some good investments, there will be some homework on your part. First you will need to determine an offer price. The condition of the property will also play a part in determining the price you are willing to offer. Miscalculating repair costs could easily eat into any profits. If you plan on turning around quickly and re-selling the property, be sure the home falls within all the guidelines with the current laws and the Landlord Tenant Act. An unexpected delay could cost you more out of pocket expense.

The oxygen tube to survival in real estate investing is cash flow. Successful investing requires a steady flow of money, purchasing below market properties, and lots of stamina. Be sure you have several resources available at your immediate disposal. This will allow you to make ongoing offers while waiting for responses on prior offers. If you end up short of funds, you will end up at the short end of the “deal”.

These precautions do not require a rocket scientist. Explore all your options with careful diligence and patience and you will come out a winner nearly every time.

Professional property investors are enjoying the current financial climate. What? You probably think I’m mad making that statement. On the contrary, what we are experiencing at the moment is a market that is in turmoil and and amateur investors are panicking. What this does for the professional property investor is gives us the opportunity to buy properties which will meet our strict criteria.

We are all too well aware that far too many people jumped on the bandwagon and purchased buy to let properties without applying simple basic criteria. Let’s face it, with a rising market anyone can make money no matter how bad a deal it was. Clearly this is a lesson to us all and reinforces that we need to have a strategy, clear-cut and stick to it when we buy investment property.

Number crunching: if you are to succeed inbuying investment property in the current market, you need to do your calculations. As we have all discovered the lending criteria has changed and now lenders are looking for 25%-30% deposit. You need to be able to demonstrate to your prospective lender that you have built-in contingencies to cover void periods, general maintenance and insurance.

Letting agents: we are fortunate in the UK buy to let market that we have several options for letting agents. We have in our experience had the good, the bad and the ugly-this is a specialist area and you would do well to invest the time and effort to interview and test them thoroughly. Let’s be honest we are buying investment property for the long-term and need to ensure that we have the best team around us. Once you have agreed terms you are relying on the letting agent to ensure you have full occupancy of your buy to let properties. Therefore do not skimp on this important factor of your business.

Quite often you will be targeted with off -plan properties with fabulous (unqualified) ROI figures. The professional property investor will disregard these figures and carry out their own research to draw a realistic conclusion. Far too many companies advertise properties indiscriminately promising huge returns which unfortunately are totally unrealistic. One important question to ask yourself is why buy properties that developers are marketing in this fashion? If it looks too good to be true, more than likely it will be.

Location, where do you buy investment property? Some will say ‘it’s far too expensive where I live’ and go on to purchase in some remote area of which they know nothing about. This is all good and well as long as you carry out your thorough research and you can manage it one way or another. We would suggest in the first instance you concentrate in the UK buy to let market ie: your own backyard there are deals to be found if you look hard enough-let’s face it no one said it was easy.

You would be much delighted if investment of your hard earned money pays off. A sound planning is essential while investing your money in the real estate because of the ups and downs in the market. It thus becomes necessary to get sound property investment advice before you plan to investment in the real estate. You need to take into account various factors like rising prices in the market, shortage of rental properties, demand for properties in a specific location and more before devising your investment plan.

Planning

You should study and monitor the market with utmost care as it will help you in understanding the position and direction of prices in the properties market. Understanding this is very crucial as the prices vary consistently. It will also help you to estimate the actual value of proposed property investment by monitoring the market. Apart from that, you also get an idea on the future of the investment and mortgage dealings.

Various Aspects of Investment

When you wish to invest in a property, there are certain peripheral expenses than the actual cost. Real estate investment gets taxed according to its value. This is over and above the money spent for the maintaining and repairing the property. You will have to take into account all these factors when you actually project the incomes and resale value for the proposed property. Positive or negative gearing means the profits or the loss incurred from the investment. The additional income also gets taxed while the deductions are from the surplus amount and not the bare minimum amount.

Multitask with Equity

You can arrange sufficient capital for your new investment from the real estate equity which you own already, which is advisable instead of going for a financial assistance from a bank. This method is an ideal way to start your new investment. But you have to allocate only certain percentage of the price for new investment if there is no problem in repayment.

Identify and Pool your resources

Quite often, it becomes difficult for a new investor to completely own a property with his money. It is not possible always to fund for the entire investment from your pocket as most are common investors. Hence, using the collective property deal is a better and wise idea. Identify likeminded friends, family, relatives or colleagues and pool your resources in order to fund the investment in a new property. But ensure to make an agreement among your partners regarding the method of sharing the benefits and losses, so that there would not be any hassles in the future. It is advisable to go for a legal agreement depicting the proportion of investment and sharing methodology to prevent problems. Sharing of benefits or liabilities is generally proportional to the investment ratio.

Help from Professionals

A professional counselor or a real estate agent can provide you the required Property investment advice to plan your investment methodology. They will also assist in assessing the scope and future value of your investment as they have more knowledge about the market.