Tax delinquent property can be gotten at firesale prices – especially when the market is falling. Post 8

Coach Mitch’s REFLECTIONS™

I recently answered a forum question to someone who is negotiating to buy a personal residence.

THE QUESTION

The seller is trying to play hardball and when asked about how he justifies the price – the seller just snorts, and says “real estate ALWAYS appreciates!” The seller is now desperate, and I’m in no hurry. But I’d like to show him some real statistics about house prices.

MY ANSWER

Sir: Let me suggest some other thoughts:

1. As you state, in your area, currently, real estate is going DOWN. That should be the obvious answer to your seller who thinks that real estate always appreciates.
2. Since your area is currently moving down, you are in a very precarious position because, if you purchase now, you do not know how much further the market will fall.
3. Why not wait until the market has bottomed out and purchase when the market is showing signs of going back up.
4. If you are looking, you will see the signs 3-6 months prior to most.
5. You may be under the impression that since the price has backed off from its highs, that you are getting a “good deal.” This may not be so.

Let’s say that the market has dropped, 20%. That is a very significant reduction. A drop in value of that magnitude is enough for a bank to call the mortgage, especially if only the minimum down payment was made.

If the price of the home was $300K, a drop of 20% means the house is now worth $240K. What if values were to drop another 10%? How would you feel about paying at least $24K too much?

• The foreclosure rate is jumping to all-time highs. There will be over 3 MM foreclosures in 2007, up from over 1.3 MM in 2006. There will be many houses available in the next six months. Pressure on the banks to do short sales will be tremendous, similar to the Savings and Loan debacle.

• If the real estate bubble does burst, and values plummet, you must ask yourself if you can afford to pay on a home which is over financed, meaning, in banking terms, that you paid too much, are carrying too large a mortgage and the bank is upside down and therefore may call the loan on you.

• Be very careful about buying residential real estate at retail. To protect yourself in a declining market, you must buy at below wholesale or, for more safety, buy as close to fire sale prices as is possible.

Be very careful

A house is just an investment. I know that we often fall in love with our homes. However, if you are unable to pay the mortgage, you will find out very quickly that – to the bank, your home really is just an investment – that has gone bad.

As a full time real estate investor, I never purchase for more than 50% of the current fair market value. At that level I can be fairly sure that I will be able to make a profit. So far, I have never lost money in a real estate transaction.

What I would do

Just make the offer. And, make the offer be good for a medium length of time, like a month. Remember, the market is continually going down. Let the first bit of anger at you and your offer subside. Then let the seller wallow in his sadness. Then, and only then, will he, perhaps, come to terms with the current situation. If he is desperate, you may get a good deal. If this seller is not desperate, then look for one that is.

See Coach Mitch’s “Ridiculously Simple System…” ™ for details.

Safe investing –

Mitchell Goldstein - Coach Mitch
518-439-6100 until midnight EST
www.CoachMitch.com