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What does it take to make a killing out of the US foreclosure market?

Abstract : Jeff Adams says that the increase in foreclosures in the US real estate market is a much needed mechanism that keeps the whole economy going.

The US foreclosure market is a great opportunity for real estate investors and new-house bargain hunters to get a foot in the door at great prices. Given the fact that foreclosures do represent a certain amount of financial pain and failed dreams it is, perhaps, a slightly hard-hearted thing to say.

Yet, as every savvy first-time house buyer and real estate investor knows foreclosures also represent opportunity. In the dark cloud of a US housing downturn they represent a very silver lining which, properly utilised, can help the housing market recover.

How is this possible you’re going to ask? Well, think of this for a moment. The engine of real estate is new housing, or more precisely, new home owners eager to get their first home. Traditionally, this group is also important for the economy at large as they spend more, on average, on decorating their homes, furnishing them and improving their appearance.

The moment the real estate market experiences a slow down the economy experiences a slow down because none of this activity is really going on and because new home owners are not able to buy expensive homes.

This is just as bad at times when houses go through a steep price increase as it is when house prices stagnate and the market ‘freezes’ as has been happening this year and prospective new buyers are virtually locked out.

This is where foreclosures suddenly come into their own. Let’s examine exactly what a foreclosure is and why it happens: A home that’s been foreclosed on has been transferred ownership from its home owner to the lender. This has happened because the home owner has fallen behind on payments to the point that the collections department of the lender or their debt assessment have decided that it’s no longer viable to try and maintain the relationship they have with the borrower.

At this point they take possession of the house and try to get rid of it so they can recover at least some of the money owed to them. It’s a decision which is not taken lightly. A foreclosed house incurs costs to process and sell and for the lender it represents a loss as they will not be able to get back on it what the life-term of the loan agreement they had with the borrower would have allowed them to make.

It does, however, represent a bargain for a new home owner looking to buy above his reach or even a discerning real estate investor looking for a way to get a foothold in the market. It is precisely because of this that finding the right foreclosure home to buy can give you a huge impetus to making a killing on the real estate market.