Foreclosures, Tax Liens and Slow Markets

If you have any real interest in real estate, you are well aware of all the bleak news stories about the increasing foreclosure rate, and slowing markets with dropping property values.

But is everything a dour as the media is telling us?

Let's put a few things in perspective. First, the foreclosure rate. Among the pending foreclosures, the rate has not changed on properties that were financed using traditional financing methods. Almost the entire increase in the foreclosure rate is based solely on properties that were financed using sub-prime loans and ARM's. In other words, had questionable loans not been made, the foreclosure rate would be stable. This would indicate that the foreclosure rate is artificially inflated.

As for the cooling market and dropping values...

Last time I looked, although not good news for sellers, those conditions are great news for buyers and investors. What is wrong with that? In a hot market, which is great for sellers, the market is bad for buyers. So what is the difference? The difference lies in which party, buyer or seller, is on top. For the investor, either market is good. In a seller's market, the investor can easily find a new buyer to sell to, at a higher price. And in a buyer's market, the investor can find bargains, making positive cash flow easier to achieve. Either way, investors win.

But there is one other difference between a buyer's and seller's market. In a seller's market, money moves faster. And people buy appliances, furnishings etc. for their new homes. This strengthens the economy, as businesses hire employees to produce more, and investors buy stock in growing companies. The reverse is true in a buyer's market, and that often hurts the economy.

And there is another boon to investors in today's slowing market. As costs increase for homeowners who used subprime funding, they often fall behind in their property taxes. This results in the county or state selling tax lien certificates on those properties, which usually provide investors with a better-than-average yield - and sometimes eventual ownership of the property. Some "gurus", such as John Beck, offer programs on tax lien investing. But beware - such gurus often hype the positive points and fail to tell you the other side. Before doing business with any guru, check them out with the Better Business Bureau, the online "review" and "scam" reports, and other consumer resources.

Real estate, like any other part of our economic lives, fluctuates. But in the long term, it always goes up. That is because Mark Twain was correct - "If you must invest, invest in real estate. They just don't make it anymore." The population just keeps growing - it is expected to double over the next 40 years. But the amount of Earth (real estate) available to those people is not increasing - we got what we got and that's all there is.

And that is precisely why real estate investing is a very smart thing to get into.