“He Who Masters the New Rules First Wins the Most”

October 6, 2010 in Investing In Real Estate, Lead Paint, REO's or Bank Owned Properties

 

Real estate investing has just gotten a whole lot more interesting. The network news has a report out today that has many investors alarmed.  Officials are attempting to halt all foreclosures across the country until the whole issue of forged documents is resolved. Add this to the trend of some title companies refusing to insure properties, and what we may end up with is a real mess for real estate investors.

It is estimated that there are currently 2 million homeowners in foreclosure. For real estate investors that are in the process of buying a REO, the chances are good that your purchase has just been put on hold. If you are trying to buy a house from one of the mortgage companies under investigation, it is likely that the title companies will not insure those loans. Whether you will be selling this home ultimately to a retail buyer or a wholesaler who will be selling to a retail buyer, that end buyer is going to require title insurance. If you can find a company that is willing to insure the title, there can be no doubt that everything is going to be a little harder and take longer to get done.

Aside from the obvious, this could affect the market for real estate investors in other ways. Property values will likely drop.  Sellers will almost certainly become more motivated. What was previously a motivated seller will likely become a “very motivated seller” who is willing to take even less for the property. What’s the downside to that you might ask?

For one thing, motivated sellers can no longer carry back financing. The S.A.F.E. Act outlaws traditional seller financing and private lending. All real estate investors should familiarize themselves with this law and should also be aware that there are some pretty hefty fines involved for ignoring the S.A.F.E. Act. For those investors who plan to sell the house to a retail buyer, many of them will no longer qualify for a mortgage due to the tight lending requirements by mortgage companies.

With all of the foreclosure news, a lot of real estate investors have put the new lead based paint rules on the back burner. These are still very much a factor for rehabbers. Dealing with the new lead based paint rules has added both time and money to the rehab formula.

If you are one of those lucky investors that have a big “pile of cash”, these events will probably have little effect on your business. We all know cash is king!  For the rest of us, when we look back on this time, it will most likely turn out to be both the “best of times and the worst of times” depending on where you stand. One thing is for sure, the investors that quickly master the new rules and the new way of doing things will be the biggest winners!