Finding Solid Ground

Spotting investment opportunities in a tough real estate market.

The Hopkins family could very well get their wish. In many markets, properties can be bought at deep discounts, either from owners who can no longer keep up their mortgage payments or from banks that have taken back properties that have gone into foreclosure.

Time to Buy?
Despite the alarming numbers, many professionals are encouraging people to enter the market. If you have some financial flexibility, you might consider becoming a landlord. “This is the best time in about a decade to invest in real estate,” says Lisa Betts, president and CEO of Capleon Properties L.L.C., a real estate brokerage firm in Brooklyn, New York. Interest rates are low (at the end of June, the average on a 30-year, fixed rate was 6.62%, according to Bankrate.com) and properties are selling, in certain markets, for half of what they would have sold for a year ago. Foreclosures continue to rise and banks are itching to get rid of homes seized from troubled borrowers, properties known as real estate owned, or REOs.

Obtaining financing for REOs isn’t impossible, either. Investors just need to be armed with more cash than they may have needed a few years ago. Some banks are asking for as much as 30% down, says Betts. You could, of course, qualify for a bigger loan if the selling price is at a huge discount to its current value, some experts say. But many banks might be reluctant to grant any sort of loan if the condition of the home is poor.

Generally, if it’s a residential property it’s going to be a different set of rules than if it’s an investment property. The lending criteria have tightened up both for home purchases and investments. As an example, now it’s almost impossible to get a 100% loan for investment properties. A bank will not finance a project that is uninhabitable, which is sometimes the case, says Larryette Kyle-DeBose, author of The African-American Guide to Real Estate Investing (Amber Communications Group; $14.95). “You want to have six months of payments in the bank and a credit score of 680. They don’t want to end up taking anything back.”

But Sibongile West, a real estate agent in Los Angeles, suggests that those who plan on buying real estate as an investment right now “really need to have a five-year commitment at a minimum to realize a gain.” The main reason is that the current housing market is still considered volatile and buyers should still be cautious. In Southern California, for example, she says the real estate market tends to cycle for between five and seven years, meaning for that length of time, there is either more demand for homes than there is available supply, or that there are more homes available than there are viable buyers.

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