Friday, July 06, 2007

Tips From An Expert

A report from the Washington Post. "The Post's Mary Ellen Slayter recently spoke with Ralph R. Roberts, co-author of 'Foreclosure Investing for Dummies' and a longtime real estate agent and investor in Michigan. An edited transcript of the conversation follows."

"Q: Who is a good candidate for investing in foreclosures? A: It's right for someone with a secure job, solid cash flow and lots of cash on hand, someone who wants to make some money on the side. If you're married, your spouse needs to be on board, too. I like for people to use their own money. But if you don't have enough cash but you're willing to do the work, find a partner. My first 'bank' was my grandmother. I didn't pay her interest, but every time I made a deal, I took her out to lunch. If you really want to do it, you can always find sources of investment capital."

"And who's not a good candidate? A: Anyone who thinks this is easy money. It's a myth, perpetuated by all these late-night TV gurus, that you can get rich quick doing this."

"Q:How does it work in declining markets, which are the ones that are most likely to have lots of foreclosures?"

"A: You account for this in the price you pay for the property. You make your profit when you buy, after all; you realize it when you sell. There's a formula in the book that helps you adjust for a soft or flat market. My wife once pointed out to me that no matter what the economy looks like, people are still going to buy and sell houses. They're still going to get married and start families. Even if 10 percent of workers are laid off, the other 90 percent are still working. They will still need housing."

"Q: Describe the perfect property for the foreclosure investor. A: It should be in a good neighborhood. And you should be able to see clearly what you need to do to fix it up and sell it."

"Q: What types of properties should investors avoid? A: Don't buy if there are a lot of distressed properties on a block. Don't invest in foreclosures long distance. You need to be able to see what you're buying. And don't touch pre-construction projects. Also, avoid any deal in which somebody promises you cash back at closing. This is never legal. Stay away from that."

"Q: What are some other things that potential investors should keep in mind? A: Always have a Plan B. Not every house on the market sells right away. You may need to rent the place out for a year or two after you fix it up. This isn't necessarily a bad thing. It can lower the tax rate on your capital gains. And be prepared to lose money sometimes. Even I don't hit home runs every time."


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