On today's podcast I talk about the opportunity in buying foreclosures and bank owned homes. 

In order to understand why this opportunity is presenting itself, it is first important to understand what got us into this situation. The answer is record low interest rates, and the fastest and quickest rate cuts in U.S History as a result of the epidemic of March 2020. Interest rates were quickly lowered and effectively kept at zero for almost two years.

Keeping interest rates that low for that long had many uninted consequences. The fact that the government was handing out EIDL Loans and PPP Loans and sending checks to everyone just added more fuel to the fire. There was too much cash floating around, and not enough goods available. The net effect is that these interest rate cuts fueled inflation. Prices of every day items, groceries, real estate and rent all increased substantially. 

The economy was over stimulated to the point that we had rampant inflation. This inflation presented itself in higher real estate prices, higher rents, and higher prices for basic goods and groceries. Even luxury goods like Rolexes substantially increased in value. 2022 was the year that everything peaked. Commerical real estate, residential real estate, luxury goods, rolexes, Art, NFT's and Crypto all peaked in 2022.  

This all changed when the Federal Reserve began aggressively increasing interest rates in 2022. With higher rates, mortgages became much less affordable. This put the brakes on the rapid price appreciation which was happening in the real estate market. It also created a dilemna for home builders who were suddently stuck with too many homes to sell and not enough buyers.

These home builders were forced to start lowering prices and offering incentives like rate buy downs and seller credits to lure more buyers. As the home builders slashed prices, this effected the comparable sales and the prices of houses in the surrounding areas and prices began declining in earnest. Real estate prices peaked in July 2022 and are down around 15% to 20% (or more) in some areas. 

Hedge funds and private equity funds who had been buying properties when interest rates were low were now discovering that they were not making much money on their rentals. Borrowing money at 2% or 3% and investing it into a rental that yields 7% is a great deal - especially if home prices are increasing. But when prices start declining, and you are borrowing at 7% and yielding less than 7% and rents are declining then that is not a great formula.

The result is that these private equity funds and hedge funds started listing properties for sale. They were afraid of how much inventory they were holding and that prices would decline further. Large entities like Blackrock and many Hedge Funds started listing many properties for sale. In some cases the asking price is LOWER than what they paid for the property. I am seeing this everywhere. There are now more sellers than buyers and we are gradually shifting to a buyer's market.  

The Federal Reserve managed to tame inflation by increasing rates. They managed to cool down the housing market. But they may have acted too fast too quickly. People who had credit card debt had to suffer for too long at high interest rates. Consumers who were looking to purchase cars could not afford the high payments.

Now we have a situation where buyers are reluctant to buy. And savier investors who see prices declining have to build a margin of safety into their purchases and must be willing to buy deeper and at larger discounts. This has created a dilemna for wholesalers who are no longer seeing the huge profit spreads that they were seeing as recently as just one year ago when they were flipping and assigning contracts for huge profits.

And the economy is slowing down. Now the Federal Reserve has a different concern. They are worried about the U.S Economy going into recession. The most recent jobs data in August was so concerning that the Federal Reserve decided to lower interest rates for the first time since 2020.

Across the economy we are seeing signs of weakness with increasing layoffs, less hiring and more people losing their jobs. In this uncertain environment, and with higher prices, consumers are being very careful with how they spend their money. Luxury good prices have collapsed. Louis Vutton Moet Hennesy, the largest luxury goods company in the world which owns brands like Dior, Tiffany, Givenchy, Fendi, and many others just reported terrible earnings.

People are not buying luxury items. Rolex prices have declined by 30% since mid 2022. The economy has changed. There is no more EIDL and PPP money floating around. There are no more checks arriving in our mailboxes. People are being careful with how they spend their money and only buying things that they have to (like groceries). Consumers are not buying new cars, new furniture and are not going on vacation as often. 

Hotel bookings are down, Airbnb bookings are down, and less people are spending money. There are also less people buying houses. Less people are choosing to refinance and remodel their homes. Less people are buying real estate, and there are far less fix and flip investors than there were just one year ago. Home Depot just released a very bad earnings report which illustrates this fact. 

And what is the net result of all this interest rate stimulus and then cuts? People are losing their jobs and unemployment numbers are up. Mortgage brokers, real estate agents, even Amazon workers and truckers are losing their jobs. Consumers are seeing the equity in their homes going down, and they are having a harder time paying their mortgage. Consumers are tapped out.

We see this in the record number of foreclosure filings. As more and more of these homeowners stop paying their mortgage, there will be an opportunity for you as an investor to purchase these properties. This opportunity is presenting itself very rapidly But you will need to know how to market to homeowners in foreclosure. I teach this at the Foreclosures and Bank Owned Properties Boot Camp which is coming up.

Many of these homeowners that are in foreclosure will lose their homes. These homes will be sold at the courthouse foreclosure auction and these houses will become bank owned properties. This represents another opportunity for you as a real estate investor to buy these properties. Some bank owned properties sell for as little as 40% to 50% of their market value.

As a real estate investor you need to learn how to buy these bank owned properties. You need to know how to bid on online auction sites like www.auction.com and www.hubzu.com. You need to understand how to buy HUD Homes, Fannie Mae Homes, Freddie Mac Homes and how to buy houses directly from the bank. I will be teaching this at the Foreclosures and Bank Owned Properties Boot Camp. I encourage you to attend this event and to learn how to get started investing in real estate by buying foreclosures and bank owned properties. This is an opportunity that will not be around forever. You need to learn how to do this now.

If you want to learn more about the Lex Levinrad Real Estate Training and Coaching Programs visit my website at www.lexlevinrad.com or call my office at (561) 948-2127.  Enjoy the podcast. Make sure you subscribe to be notified about the next episode.