The rise in foreclosures that we are experiencing this year poses a challenge our economy simply cannot afford to ignore. For real estate investors the deal is always to find ways to create value out of situations which are seemingly bad.
I say seemingly because there is no cloud without a silver lining and the foreclosure crisis is the perfect example. Let’s take a worst case scenario: the number of foreclosures in the coming months manages to hit new records which means that the housing industry will undergo a slump and mortgage lenders will suffer significant losses.
Despite the cut in interest rates by the Fed (the largest single cut in 25 years as a matter of fact) the crisis of confidence that’s being undergone by the money markets is sufficient to affect a lot more than just the housing industry which means that suddenly the dreaded ‘R’ word becomes a lot more plausible and a recession looks like it might be on the cards.
Left to its own devices this is exactly the scenario that will pan out. What becomes a saving characteristic is the fact that real estate investors act as a catalyst buying up properties that are gridlocked due to foreclosure and releasing them back in the market while working out deals that free up cash for mortgage lenders and, possibly, existing home owners.
In the process they create movement in the lifeblood of the housing market: new home owners who suddenly find they can purchase properties at prices they could not afford to before. These properties which if they had been left without the intervention of real estate investors would have become black holes in the local (and national) economy suddenly become sources of further wealth, helping money go round through purchases, repairs and development.
Foreclosures are part of our economic model and when they get out of hand they can seriously hurt the economy. At this stage it has become evident however that they are one of the symptoms and not the cause. By becoming as active as possible in foreclosures real estate investors help do one of the hardest things possible in the housing market: break gridlocks and move things forward, helping everyone along the chain make the money they deserve.
It all starts with finding the right foreclosures to promote and the right market to promote them in and the right type of buyers to take these properties off your hand and, lucrative as it may be, it is also just the right kind of thing our economy needs right now in order to rebound.
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