Buy And Rent REO Foreclosure For Highest Returns

Amidst the "Great Recession" an opportunity appears for those who purchase real estate.

However, if you look behind the financial calamity, there is a major opportunity. A unique set of circumstances makes real estate a hot ticket for any investor looking for a safe, sustainable, fixed return. Those circumstances are: low interest rates, a pricing vacuum and a record inventory of foreclosures. Below we will touch on each of the major factors and how it specifically creates the "perfect storm" for you to harness as a buyer of real estate.

Low rates: With pressure on the Fed to help keep inflation in check, Bernake and company have stated their intent to keep rates as low as possible. As of today, it is not difficult to have a rate of 4.5% (if you have a 620 FICO score or higher).

Record foreclosures: Due to the massive bubble burst, banks are foreclosing on toxic loans at an aggressive pace. As the inventory builds up, prices fall. The falling prices help perpetuate the pricing vacuum.

Pricing vacuum: Historically, fall has a slowdown in the real estate market. With fewer buyers, the ability to have highly favorable terms assists with keeping your acquisition costs low. Banks and private sellers are paying closing costs on behalf of buyers. Not every offer will have all of the buyers costs paid, however, with a little diligence; you can find sellers who are willing to pay up to 6% of the buyers closing costs. Depending on the home and the loan, this will likely mean that the buyer will not have to pay any out of pocket closing costs.

High ROI: You can buy property for a deep fraction (some instances 50%) of what it was just a few years ago. If you look hard enough, right now, you can buy property with little or no money down and turn a decent profit. Many of the people who are losing their homes to foreclosure are turning to rentals for thier housing needs. This has created an increase in demand and a decrease in supply. The end effect is that market rents are really high and the vacancy rates are very low.

For example:

Currently, in San Diego, you can buy a 1 bedroom condo with a total payment of $615.71 per month that is leased for $850.00 per month. This is purchasing the condo using a 30 year fixed conventional with 20% money down at a rate of 4.5% (today's prime). This yields a profit of $234.29 per month or an ROI of 17.1% off of an investment that is less than a Scion or used Mercedes. This is not a bad return by anyone's metric.

Conversely, if you are active duty military stationed in San Diego, you can buy the same 1 bedroom condo with a total payment of $698.81 per month. Eventually, you will need a bigger home as your family grows. Conversely, if you already have children, you may need to downsize as they grow.. When you move from this home, you can lease out that condo for current market rent of $850.00 per month. For this example, we will presume that the rental amount will not increase within the next 3 years and you move within that time frame. Purchasing this condo using a 30 year fixed VA loan with no money down at a rate of 4.5% (today's prime), yields a profit of $151.19 per month or an ROI of 275% off of an investment of $475 (the cost of a VA appraisal). A 275% return is something you will never be offered on your TSP account.

In a long enough time line, real estate historically appreciates. Once the housing markets rise again, another level of profit comes from the ability to sell the property and either; tax defer the profits via a 1031 exchange, leverage the funds, occupy the property and use the $250,000 / $500,000 capital gains exclusion. Because of the returns proffered, the recent bubble has created vast investment opportunities for anyone looking for an alternative to devaluing and volatile stocks. To apply for a VA loan, or other government insured mortgage, call or click VA Home Loan Centers today. To apply for a conventional home loan, or other non-VA loans, use the contact info below to speak with a conventional specialist.


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If you are in San Diego, apply to get a VA loan here. Philip Georgiades is licensed by the CA DRE and is CLS for VA HLC, San Diego. Right now, the US government is selling foreclosures for as little as $100 down. Many of these properties will offer a positive cash flow immediately.